If USA financial system is Georgia, this week is shaping up to be the first week of the war. This morning: wholesale prices/July announced, 1.2% up (from up .5% estimated). This is highest in 27 years. If Fed raises rates, which it must, another slice of mortgages go bad, so Fed can’t raise –and is likely stuck as-is. This leaves plain old money supply to tame inflation –long slow and harsh on employment if wholesalers can’t pass on these costs.

Good news is, the bad news is per July, and August looks better to date –reports say.

These numbers endanger the Dollar rally, which to date has been in some part an improvement in the trade gap (foreigners need more dollars), which has power limited to the size of the change in the gap (about .4%), unless exogenous events, like say a Russian invasion, sends safe-haven buyers.

So Dollar dynamism may power-down in the manner of the Fed and the Georgian Army midweek of wk 1 of the invasion. Mobility restricted by greater force, greater force multiplied by immobility.

SEC Chairman Chris Cox a couple hours ago announced an investigation now in process, involved those “ARS” vehicles (Auction Rate Securities –what we’ve mentioned here in re the Boom’s sudden Stalingrad), in twelve (that’s 12) different financial firms. These will be the biggies of course, i’m sure the list is on the web news by now.

Meanwhile, back at the ranch, gold & oil are up strongly, indexes down sharply, financials down very sharply.

Consolation, this run of events is so thouroughly bad, it can’t get much worse –and the indexes are still on the sweet side of 20% down, and 20% is MUCH better than, say, 30%. A bottom here or near? well, these things end when they end –depth and duration is incredibly dependent on those dadgum house prices –they have to quit falling and wiping away both borrower & lender equity.

Biggest fear –interest rates responding to inflation, backing up higher, raising cost of houses, in effect lowering value further.

it’s a war out there, folks.