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Today’s economic news saw the PPI rising 0.1%, with the core rate falling by 0.4%. Estimates were for up 0.3% and 0.2%, respectively.

Discussion currently seems to revolve around whether the Fed will definitely stay “on pause” now, or perhaps whether they “went too far” with the string of rate increases.

I want to use this opportunity to bring out an OLD soapbox of mine: the increase in the money supply in the early years of this century was waaay overdone and credit was loosened waaay too much. The resulting spending binge we Americans went on, which was multiplied as we re-financed and re-re-financed our golden geese rapidly-appreciating homes, should have sent the economy into a hypertensive crisis. The Fed should have had to raise by leaps and bounds to get things under control, and should have had to overshoot “normal” to cool off the economy, “normal” being a 6+% Funds Rate.

Instead, we’re sitting at 5.25%. The Fed has not “hit the brakes,” it has only let off the accelerator somewhat. For the economy to be slowing, or even threatening to slow at this point, is ominous. Spooky. Dark clouds on the horizon.

I was encouraged by the recent reports of healthy economic growth, the little blip in bond yields, and the slight strengthening of the US Dollar, which is skating on the thinnest of ice.

Now we’re placed squarely back in a position where we could be faced with waning economic growth, unmanageable debt, a falling dollar, and rising interest rates all at the same time. Yes, rising. If… no, make that when, the Chinese and Japanese slow the rate at which they are accumulating US Treasury debt, the price of that debt (i.e. those bonds) will fall with the slowing demand, and the yield will of course rise, causing the rates on virtually all credit products to rise as well.

These are ingredients for a terribly nasty-tasting economic cake. Let’s hope today’s PPI is subject to some significant revision, and that the economy continues to grow at least at a simmering pace for a number of months.

We are due a recession- overdue if you count the one the flood of new money a few years ago postponed. I think the inverted yield curve is telegraphing that fact. But remember, we need something to recede from.

Note: I’m turning off comments on this post– for some strange reason, it seems to be the target for a flood of comment spam.