Leaping Lucre, Batman!

Prices rise to absorb the amount of money available.

   Industrial production is down and new home construction is flat, according to government data released today.
   Meanwhile, medical care costs are rising, despite a major increase in the number of Americans purchasing health insurance. The industry defends their rising rates by citing the increase in the number of people seeking care. But that's contrary to the concept that the more people contribute to the funding, the lower the risk to the company. Therefore, premiums can be lower.
   However, premiums are leaping, and the industry insists that's because their costs are rising. One reason could be that health care providers are raising their fees as they become more confident that they will be paid. That reflects a widespread attitude of confidence that "the insurance will pay," so they seek more treatment.
   Meanwhile, pharmaceutical companies also boost their prices -- some to egregious levels -- simply because they can. They charge what the market will bear, and there are few controls to rein them in.
   All this on a day when the Federal Reserve Open Market Committee meets to consider the state of the economy, and perhaps hike a key interest rate to take away the punch just when the party is getting under way.
   Data:  Privately owned housing starts in November rose by 10.5 percent from October estimate, the Census Bureau reported. However, the October number reflected a 12 percent drop in construction, and the agency added a caveat that it "does not have sufficient statistical evidence to conclude that the actual change is different from zero."
   Separately, the Federal Reserve said industrial production declined again in November, down 0.6 percent, following a 0.4 percent dip in October. In addition, manufacturing was unchanged. Other numbers were also down, with total industrial production in November 1.2 percent below its level a year ago.
   
   As the money supply increases, prices rise. In effect, that's a definition of inflation. Many equate rising prices with inflation, believing that higher prices cause inflation. Actually, it's the other way around. As the money supply is inflated, prices rise to absorb the amount of money available.
   However, as prices rise but wages do not, consumers are caught in the squeeze, and industry responds by cutting back production to maintain prices and profits.
   All of which raises a big question: Why hit the brakes when the economy is barely cruising?
   We'll have the Fed's answer tomorrow.