Wondering where all the inflation is? Bottled up in Washington, but not for long.

“Is there any other point to which you would wish to draw my attention?”
“To the curious incident of the dog in the night-time.”
“The dog did nothing in the night-time.”
“That was the curious incident.”
– Sir Arthur Conan Doyle, “Silver Blaze”

Over the past few weeks (Months? Years? Goodness how the time slips away), Justice and I have gone on at some length as to how, when and why Washington’s loose fiscal habits will inevitably induce inflation.

And yet, recent headlines would seem to put the lie to this concept. Washington reports that despite all the billions in stimulus monies it has been pumping out, wholesale prices only rose some 0.2% in April, while consumer prices rose a mere 0.1%.

Needless to say, the Fed jumped all over this ostensible lack of inflation at its most recent FOMC meeting, claiming that there was no reason whatsoever to raise target interest rates above their current range (0% to 0.25%).

Something doesn’t quite add up. If the murderer is in the house, why isn’t the dog barking?

Because the murderer is coming, but he’s not quite here yet.

How Can You Tell When a Politician Is Lying?

Earlier this year, state governors across the country told Washington that if they didn’t pony up some serious cash, they would have to start doing the kind of stuff that seriously ticks off voters, like firing cops, teachers and ambulance drivers.

We’re not just talking old-line rust belt states either. For years, big, rich states (with lots and lots of voters) like California and New York had been living high on the hog off income and property taxes.

Washington begged them not to act in such a precipitous (read as unpopular) fashion. “Keep those teachers and firefighters on the job, and we’ll send you whopping big stimulus checks.” With that IOU under their belts, both Washington and the governors immediately called press conferences to brag about how many voters’ jobs they had just saved!

You’d think that anyone who has successfully run for statewide office would know the difference between reality and a politician’s promise.

Going for Broke

As I sit to write to you today, 46 states are coming up on the end of their fiscal year. All but one have laws on the books requiring balanced budgets. And 19 of those states have proven incapable of passing spending plans.

In New York, various state senators and representatives have taken to literally locking each other out of the room. California is so woebegone that it is actually running out of cash in the till like some kind of bankrupt shop owner. Seriously, come the end of July, Cali state bonds – and paychecks – will start to bounce.

And remember all that money that Washington sent to GM and Chrysler so as to keep voters in Michigan employed? Now that state warns that its welfare rolls are slated to grow by an additional 100,000 in the next few months.

Follow the Money!

Wait a minute! Wasn’t Washington slated to spend billions – maybe even trillions – to keep us out of this fix? Isn’t that where a lot of the inflation Justice and I have been warning about was supposed to come from?

Not to worry: Both are coming, as soon as Washington can get its act together.

Getting your mind wrapped around Washington spending is a lot like herding cats or grabbing blobs of mercury. (And yes, when I was a kid, they let you play with blobs of mercury in school, so long as you promised not to eat it. And I’m okay. Mostly.)

For today’s column, I’ve managed to track down about $61 billion in specific spending programs at agencies like Health and Human Services, Agriculture, Commerce, and Housing and Urban Development. Better make that theoretical spending programs, because as of today, some 79% of that allocated spending is still sitting about in Washington vaults doing nothing – good or bad.

It’s not helping state governors balance their budgets, it’s not really saving any jobs, and it’s not stimulating inflation... yet. This dog has yet to bark, let alone hunt.

Pain Flows Both Ways

But it will, and soon. Because state governors are actually pretty high-ranking members of their various parties. Most head the local state committee, many are the sort of superdelegates who selected last year’s presidential primary convention winner, and more than a few have their eye on the presidency itself.

These are powerful men, and they are in pain. They have every intention of sharing that pain if Washington doesn’t get off the stick and soon.

In the end, these state budgets will get passed, balanced by Washington’s largesse. And when all that money hits the proverbial fan, it’s look out dollar, my friends.

Other Related Topics: Bank Bailout , Editor Adam Lass , Federal Reserve , Stimulus Plan , WaveStrength Options Weekly

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