Much like Bullwinkle’s attempts to pull the rabbit out of the hat, the Fed’s attempts to fix the crashing economy by cutting interest rates will never end in success. The fundamentals are too screwed to fix anything by continuously slashing interest rates.

As a matter of fact, by all appearances the slashing of interest rates is moving everything in the WRONG direction. Mortgage rates have actually risen steadily, reflecting what home lenders think is going to be the fallout from the weak dollar. Even more alarmingly, the price of energy is reaching new heights almost every day now. It took a long time for the “usual” result of sharp oil spikes to take hold, but they have taken hold with a vengeance. This is 1974 on meth.

Many of the stupid conservotard types who whined and cried about “welfare” until the safety net was slashed away will now reap what they have sown. I hope they enjoy it.

Oil prices jumped to an all-time trading high Monday in Asia as the tumbling U.S. dollar and plunging stock markets prompted investors to seek shelter in commodities.

Investors fled the dollar after a surprise move by the U.S. Federal Reserve on Sunday to provide cash to financially squeezed Wall Street investment houses pushed the battered greenback deeper into multiyear lows against the yen.

“The Fed’s move overall will help the liquidity of the U.S. dollar, and that will really further soften the dollar,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. “Meanwhile, investors seem to be just following the mantra of buying oil and commodities to hedge against the falling dollar and inflation.”

Light, sweet crude for April delivery spiked to a record $111.42 a barrel — up $1.21 from Friday’s close — in electronic trading on the New York Mercantile Exchange midmorning in Singapore. It later slipped back to $111.08 a barrel around midday.

The contract’s previous high was set Thursday at $111 a barrel. It fell 12 cents to settle at $110.21 a barrel on Friday.

Analysts blame the weak dollar for oil’s recent rally. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is weak.

Interest rate cuts in the U.S. further weaken the dollar and have helped drive oil’s rise. In an extraordinary weekend move, the Fed cut its discount rate on Sunday by 25 basis points to 3.25 percent. The Fed is also expected to cut the benchmark federal funds rate at its regularly scheduled monetary policy meeting on Tuesday.

“The inverse link between the dollar and oil prices seem to be strengthening. While we have new records for oil almost daily now, we’re also seeing daily new record lows for the dollar,” Shum said.

Shum said the surge in investor demand for commodities as a hedge against inflation has created a self-fulfilling cycle that causes prices to keep rising.

“When there is more liquidity, it will raise inflation. So investors pump more money into oil as a hedge, and that further fuels inflation,” he said. “It points to the risk in the oil market that the fundamentals don’t really support such continual strengthening in pricing.”

Equities investors also sought refuge from Asian stocks, which declined sharply Monday after the stunning collapse of Bear Stearns Cos., one of the world’s largest investment banks.

Tags: bernanke, economy, energy prices, housing crisis, interest rates

This entry was posted on Monday, March 17th, 2008 at 8:45 pm and is filed under The Republican Depression of 2008-?. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.