This recession is going to be prolonged and deeper than expected. "Expected" is what the government pronounces, or what the Wall Street prognosticators prognosticate. They are seldom correct - or even close. The government speaks wishes, while Wall Street must sell stocks and bonds, so the Street cannot frighten the shit out of the clients.

Take a look at the activity of the Treasuries: The bond, the notes and the T-bills are so sick that their returns are actually below the inflation rate. What that means is this:

1. The Federal Reserve can't easily create more cheap money.
2. The Treasuries are not going to auction very well due to the very low return...
and
3. Who is going to invest in a bond that loses money - they return LESS than inflation PLUS the interest they pay is taxable income PLUS they are returning such a low number that once rates increase (and they will!) the bonds will lose value in the marketplace and if you sold them you would take a capital loss!

Take a look at what the Federal Reserve is going to do:
If you think interest rates are going to continue to fall, think again. The core inflation rate is about 4 to 4.5 percent. That is the highest for about fifteen years, maybe longer. The Federal Reserve considers inflation the most important no-no in their charter. They would allow the economy to crunch before they will allow the inflation rate to increase again.

Well, it has. So there won't be any more cuts in the discount rate or major money rates under their control. Instead, I wouldn't be surprised to see them jump the rate before the June meeting. Maybe sooner!

So what about inflation?

It is just beginning. Go to the market.

Commodities are skyrocketing. Wheat (flour) has doubled in the last seven months. Anything made with flour (bread, pastries, snacks) is escalating. Bakeries are paying $40 for a 25 pound bag of flour that cost $10 in November.

Check the prices in the dairy case. Meats are up and will continue to rise due to the escalating cost of feed and transportation, cold storage, etc.

All of this is due to the cost of crude oil. If you add energy to the CPI figures (and they try to hide it!), inflation would actually be around 6 percent or more.

Gasoline went up six percent here just in the last three weeks!

Everything moves. And everything that must move requires energy. So everything is costing more. And add to that the sudden impact of two-hundred billion newly printed dollars when those US government checks arrive in May and June and you have a spike in inflation that will force the Fed to act.

When rates go up, money tightens. As money tightens, loan costs increase and fewer loans are available. Investment decreases. The recession deepens and lengthens. More layoffs occur, more foreclosures, etc.

What to do?

Don't rush out and spend your tax return cash OR the forthcoming government handouts. Save it. You'll probably wish you did by the Autumn.

Here's one more point, and it really irritates me!...

The bankers and Wall Street are crying for the federal government to bail out the bond insurers! What GALL! The bankers and Wall Street are the reason we have the sub-prime mortgage crisis in the first place... and they want the government to take away the paper they own?

Wait! The government never pays for anything... WE DO. It is our tax money they want to bail them out of their bad investments!

I believe that anyone who makes an investment takes the risk. Let the damned shareholders take their losses like grown-ups. Screw a bailout! Not one cent of my tax money for bankers and shareholders!

I don't see anyone bailing out the 165 workers here at American Standard Corp. whose jobs were exported to Mexico in December - with three weeks notice and no buyouts or severances! I don't see anyone coming to bail me out of my debts. And the banks and Wall Street have the damn gall to want me to pay for their mistakes?

I can't wait until November!