09 JUN 08 / "Tight Money"

Some financial experts are betting that the Federal Reserve will adopt a tight money approach in order to finally ring out the inflation in the economy and give the value of the dollar a much-needed boost. Raising interest rates modestly now after they had been cut during the spring would make sense given that our present anemic economic condition is due in large part to easy money policy that got Americans into mortgages they really couldn't afford, created the housing bubble and enabling home owners to use their domicile as a bank. American consumers, attracted by low interest rates on credit cards, are tapped out with high balances.

The unemployment rate rose to 5.5 percent last month, the largest monthly rise in 22 years and the fifth consecutive month of negative job creation; but the American economy eventually will rebound out of this rough patch, which cannot yet be called a recession. The economy will have to find its way out of this slow growth period without the benefit of very low interest rates because - based on recent remarks by Federal Reserve Chairman Ben Bernanke - indications are the Federal Reserve is more concerned with inflation than with recession.

Perhaps the debate should not be about tight or easy money, but sound monetary policy that does not diminish the value of the U.S. currency and entice consumers and lenders into imprudent financial decisions that triggered the multitude of crises over the past year.

At more than $130 a barrel, the demand for oil is slackening. This will take some of the inflationary pressure off of goods and services that are linked to oil.