The congress came to a compromise regarding the government shutdown. Both sides are claiming victory that they have finally solved the deficit spending. In reality, no one has solved everything. They agreed to reduce the 2011 deficit by 1% of the budget. The government is saying that this demonstrates their resolve. If this is the best that we can do is this tiny cut, then this shows that America will never do anything to get their fiscal house in order. Change will only come in the aftermath of an economic crisis.

The dollar had a terrible week. Many currencies made record high. Gold and silver made record highs. It isn’t a coincidence that the dollar is losing value and that prices are going up. It is a cause and effect relationship. The consequence of the government not getting anything fixed is that the price of everything is going to go up.

The experts are debating whether rising commodity prices will lead to inflation. But the rising commodity prices are the manifestation of inflation that has already entered the system. The supply of money affects the supply and demand curve of oil. If there is more money in the system, then there is more demand for oil, because there are more dollars bidding for the same amount of oil. It is like an auction in which everyone has $1000 instead of $100. This is exactly what is happening in the commodities market.

The president of the Dallas Fed said that we shouldn’t monetize the debt. But that is exactly what they are doing. People are saying that the reason that the United States won’t face a crisis like Greece because they can monetize their debt. But the Dallas Fed President is saying that monetization is even worse. And he is right. The longer we wait to to the right thing, the more painful things will be. The British didn’t raise rates, and raising rates is the right thing to do. The Fed is doing nothing, and the consequences will be dire. Interest rates have been inching higher, but we will see how the markets react to the bad news out of Washington. The next big vote is on raising the debt ceiling. They will probably vote to raise it, which is the wrong thing to do.