Ben Franklin Report: What's That Flushing Noise?

For those who have been watching the Dow Jones since Friday, one might feel a sense of relief as markets appear to be recovering value, but as new data points suggest, the economy has not yet begun to feel the pinch of the financial crisis.

The first two points of data are a double whammy against two of the biggest motives in a capitalist system, the ability of a producer to make a profit and the willingness of the individual to spend money on goods and services. While a 7.4% increase may not seem like much of an increase in the Producer's Price Index, one can be sure that such a trend would lead to inflation above the 1%-2% range preferred by the Fed. However, deteriorating consumer confidence because of a bad job market means that addition spending on the part of the aforementioned consumer will not be spurred by a material increase in wealth but rather will be pried out by higher costs, which means that the increased revenue will be pure stagflation. This is only spurred on further by the third point of data, continued deterioration in the value of housing, which has served as a store of value in the face of a negative savings rate.

The combined effect of these trends in the market mean that the dollar is going to continue losing value, which will be reflected in exchange rates against other currencies, especially the Euro. Unfortunately, for the American citizen, the U.S. Dollar has ceased to be a safe investment vehicle, which is beginning to be reflected in the price of oil. As the dollar loses its value, the basis for the U.S. Dollar's Oil Standard will be eroded. Some of this increase will, of course, be based on speculation, but this is a losing proposition as the infrastructure that supports the movements of our economy might . This, of course, is not a permanent situation, but the painful solution to the crisis is not immediately forthcoming: fiscal conservatism, re-evaluation of oil as an energy source, and stricter regulation of the financial marketplace.

All in all, expect the situation to get worse, and a clear sign will be yearly earnings releases from Fannie Mae and Freddie Mac, on Wednesday and Thursday, respectively.