Even if growth in the U.S. and Europe slowed, China would be there to pick up the slack, or so the thinking goes. Now it looks, though, like that may not be working out. According to The Wall Street Journal, "Gross domestic product for the quarter was 10.1% higher than in the same period of 2007." Last year that number was almost 11%. Much of the drop is blamed on falling exports because economies have fallen off a log in the West.

To almost anyone else, a GDP growth rate of over 10% would be a dream, but to China it is probably more of a problem. Inflation rate in the country is rising at over 7%, and for commodities like food, the rate is closer to 20%. The increase in the number of Chinese middle class who can be consumers of much of the economy's local output and imports from other countries relies on rising wages. But a 50% drop in the Chinese stock market is already making many citizens in the nation feel pinched.

China cannot pay its workers more so that they can continue to become a consumer nation and cover the costs of rapidly inflating prices if income from exports is not there to drive GDP relentlessly higher. As odd as it may seem, a "recession" in China might happen even if the growth rate would be considered outstanding in any of the older industrial nations like the U.S.

GDP growth is only a relative indication of strength, and in China, the strength looks weak.

Douglas A. McIntyre is an editor at 247wallst.com.

Procter & Gamble (NYSE: PG) wants to calm the nerves of jittery Wall Street. According to this item, the Kimberly-Clark (NYSE: KMB) warning has spooked investors worried about inflation (I'm one of them). So, P&G wanted to let everyone know that things will be all right at the maker of Ivory soap and Pringles potato chips (or is that crisps?).

P&G is confident that it can deliver top-line growth of between 8% and 10% when it next reports. Also, management believes that earnings per share will still be somewhere between $0.76 and $0.78. You know it's a bad market when an announcement indicating that the status quo will merely be maintained as opposed to being exceeded is enough to keep a stock slightly in the green by a few pennies, as opposed to down nearly 5% (which is how the stocks of P&G and Kimberly-Clark are trading, respectively, as of this writing).

Of course, the fact that P&G came out and supported its guidance doesn't mean that inflation shouldn't be feared. We're still in bad shape in this regard, the bears haven't gone away, and I don't think either P&G or Kimberly-Clark are trading buys. I like both for the longer-term, and in terms of Kimberly-Clark, the yield is attractive. However, in terms of buy-and-hold-and-forget, you can't beat the safe reliability of P&G, whose product portfolio is one of the best out there in the consumer sector. I would imagine that P&G's brand equity is helping it navigate this vicious commodity storm, but don't think it can't weaken in coming quarters.

Disclosure: I don't own any stock mentioned; positions can change at any time.

U.S. producer prices soared a seasonally-adjusted 1.8% in June, the U.S Labor Department announced Tuesday, as rising energy prices continued to increase wholesale costs at an alarming rate.

Economists surveyed by Bloomberg News had expected the June PPI index to rise 1.4%. Producer prices increased 1.4% in May and 0.2% in April.

The core rate, which excludes food and energy costs, increased 0.2%, the Labor Department said, below the Bloomberg News 0.3% consensus estimate.

Economist Peter Dawson told BloggingStocks Tuesday the June PPI is another unfortunate data point for the economy, but it's not as bad as it appears. "The report is bad, but not as bad as it could have been. Energy really drove the index higher. If you took out gasoline prices, PPI would be down a half percentage point," Dawson said. "That said, energy prices are still rising at an alarming rate and they're a cost concern for businesses and individuals alike."

The dollar was on-pace to record another weekly decline Friday - - undoing the gains against the euro and pound earlier this summer- - as traders and analysts debated the likely next step for the U.S. Congress and/or the U.S. Federal Reserve on the heels of possible additional massive, mortgage-asset-related write-downs by Fannie Mae and Freddie Mac.

The dollar traded at about $1.5888 to the euro Friday at mid-day, down about 1 cent, and also within about 1 cent of an all-time low versus the euro. The dollar also traded at $1.9878 to the British pound, also down about 1 cent, and off about 1 yen to 106.09 versus Japan's yen.

Currency trader Andrew Resnick said that given the dollar's decade-long slide versus the world's other major currencies, it's difficult to fathom further dollar declines, but that's what the economic fundamentals suggest.

"From one perspective, you have to ask, at what point do central bankers say the dollar's slide poses serious risks of commodity prices rises and inflation, with negative consequences for global growth?" Resnick. "On the scale of competing demands, you can make a strong argument that the dollar can not be permitted to slide much further."

However, Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), which face additional losses, Bloomberg News reported Friday, could come under full control, also called conservatorship, of government regulators, or receive bridge loans from the U.S. Congress or the Fed, Resnick said, absent a private equity investment. In any event, if Fannie's and Freddie's additional losses hit key levels, "we're looking at another enormous government obligation, and that's not good news for the dollar," Resnick said. "It means more dollars in circulation, which combined with the weak U.S. economy, will drive the dollar lower."

Resnick added that he presently is short with the dollar in the euro / dollar, British pound / dollar, and yen / dollar currency pairings.

The Bank of England Thursday kept its key, short-term interest rate the same, at 5%, the bank announced. Economists surveyed by Bloomberg News had expected the BOE to maintain current interest rate levels.

In its previous meeting, the BOE kept its benchmark interest the same, as well. The BOE's last rate cut occurred on 10 April 2008, when it lowered its key rate by 25 basis points to 5.0%.

In contrast, the U.S. Federal Reserve has lowered its key, short-term interest rate by 325 basis points, to 2% from 5.25%, as it attempts to jump-start a U.S. economy dragged down by its worst housing slump in a generation. At its most recent meeting, the Fed took a pause in its rate cut cycle, with Fed Chairman Ben Bernanke recently signaling his concern about rising inflation and the decline in the U.S. dollar.

Meanwhile, the European Central Bank has shifted from an accommodative to a restrictive monetary policy: last week the ECB increased its key rate, the refinance rate, by a quarter point, to 4.25%.

BOE's decision: no surprise

London-based economist Mark Chandler told BloggingStocks Thursday he wasn't surprised by the BOE's stand-pat decision. "There is concern about rising inflation here in the U.K., but the signs of economic slowdown are all around us, also, not the least of which being declining housing prices," Chandler said. "Housing prices in June dropped the most in that month in about 15 years. The U.K. also isn't affected as much by high oil prices as the U.S. and [continental] Europe are, so that gives the Bank of England some leeway. And if GDP continues to slow, the bias will be toward lowering rates, not raising them."

If the leading ECB official is correct, the West is about witness yet another episode of 'That 70s Inflation Show'.

European Central Bank President Jean-Claude Trichet warned Wednesday that euro nations are already seeing the first signs of a wage-price inflation spiral, and called on governments to exercise discipline by not granting wage hikes that could further fan inflation via consequent price rises, The Associated Press reported.

The ECB's governing council "is strongly concerned that price and wage-setting behavior could add to inflationary pressures," Trichet told the European Parliament, while also defending the ECB's decision last Thursday to increase interest rates. "First signs are already emerging in some regions of the euro area."

A wage-price spiral typically occurs when employees and others seek wage increases to keep pace with rising prices. The increased wages ratchet up employer costs, who pass the added costs on to consumers via higher prices, perpetuating the wage-price spiral.

Trichet's concern: Rising European inflation

New York Times (NYSE: NYT) columnist and economist Paul Krugman, author of The Conscience of a Liberal, would never be confused with a loyal backer of the economic policies of President Bush.

Still, Krugman, in the academic tradition that argues that a scholar's most important word is "valid," gives President Bush credit where credit is due -- or at least a lack of blame. Krugman says it's true that the U.S. economy is a mess, but it's not true that the bad economy is entirely President Bush's fault.

Krugman outlines the unfortunate reality regarding the U.S. economy's 2001-2008 performance: recession, followed by one of the weakest recoveries since World War II, followed by another slump that technically isn't a recession yet. When President Bush leaves office, Krugman says, the U.S. economy will have created five million jobs, not nearly enough to keep up with population growth. By contrast, 22 million jobs were created during the Clinton Administration.

Oil fell more than $5 to $136 per barrel Tuesday morning as concern about a global economic slowdown prompted traders to conclude that oil demand growth may slow in the quarters ahead.

Oil fell $5.11 to $136.26 per barrel -- a drop that brought its two-day decline to more than $8. (Oil is still about 90% higher than a year ago, and about 400% higher than in 2000.)

The other major energy commodities, likewise, plunged for a second day, in early Tuesday trading. Heating oil plummeted 14 cents to $3.83 per gallon, unleaded gasoline fell 12 cents to $3.36 per gallon, and natural gas plunged 45 cents to $12.53 per million BTUs.

Some bloom off the energy rose?

Economist Peter Dawson said investors and traders are taking a harder look at the energy picture, in light of recent corporate and economic data points. While underscoring that "it's always difficult to try to evaluate events in motion," Dawson said a protracted recession in the U.S. combined with a global slowdown "would take some of the bloom off the energy asset rose."

The European Central Bank's quarter point interest rate increase has been called 'counter-productive,' 'unnecessary,' even 'self-defeating.'

All of which begs the question, why did the ECB last Thursday increase interest rates so soon? (The ECB increased its key interest rate, the refinance rate, a quarter point to 4.25%, last Thursday.)

One argument is euro zone inflation, presently running at about a 3.7% annualized rate. That's well above the ECB's 2% inflation limit.

Now and then, a media outlet or analyst will talk about $200 crude. Most analysis shows oil peaking at $160 or so and dropping back over the next few months. The commodity may never trade at $60 again, but most of its rise may be over.

Unfortunately, the picture of the energy world seems to be changing. According to The Wall Street Journal, "Oil's historic ascent from $100 to nearly $150 a barrel in just six months is lending weight to a far grimmer prediction: Crude could reach $200 a barrel by the end of the year." The paper adds that this could mean gas would rise to $6 a gallon.

Oil may actually go higher especially if demand in China and India continues to rise and oil producing countries, including Venezuela and Nigeria, stay politically unstable.

What is truly frightening is what $200 oil would do to the U.S. economy. It would almost certainly send companies in the automotive and airline sectors into Chapter 11. Some consumers could see the cost of gas and heating their homes become as high as 20% to 25% of their total cost of living. That would destroy current retail spending habits.

But the economic effect would be more widespread than the airline and car sectors. Every industry that has to ship large amounts of its products, from newspapers to food processors, would be faced with nearly unimaginable additions to their costs of doing business.

All of that would send the US economy into a long and very deep recession. If nothing is done about oil prices soon, the odds of tremendous trouble go way, way up.

Douglas A. McIntyre is an editor at 247wallst.com.

The dollar rose to its highest level in more than a week Monday morning on talk leaders at the G-8 summit in Japan will support the currency in an attempt to halt rising commodity prices.

The dollar strengthened about one-half cent versus the euro to $1.5629 and about 1 cent versus the British pound to $1.9659 in Monday morning trading. The dollar also rose about one-half yen to 107.66 versus Japan's yen.

Ian Stannard, a senior currency strategist at BNP Paribas SA (NASDAQ: BNPQY), France's largest bank, told Bloomberg News Monday that support for the dollar in the form of verbal invention continues, driven by the thesis that a stronger dollar, globally, is in everyone's interest.

Many economists agree that a falling and weak dollar has been a factor in rising commodity prices. Oil and other commodities tend to rise when the dollar falls as investors / traders seek to preserve purchasing power of the decreased value of dollar-denominated commodities by bidding their price up. However, economists differ regarding the extent of the weak dollar's commodity-inflation impact, with some arguing it is only a mild factor.

'Actions speak louder than words'

Further, economist Peter Dawson told BloggingStocks Monday, dollar bulls should not feel too emboldened by a verbal stance by the G-8.

Ted Allrich is the founder of The Online Investor and author of the just released book: Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he'll offer advice to investors who are just getting started.

There will come a point when the stock market stops going down. Hard to believe as we muck through the mire of the mortgage mess, oil spikes, and housing hardships. But it will happen. At some point the last mortgage will be written off, oil will at least stabilize, and houses will sell again. Having said that, don't expect any sharp rebound when the recovery starts. In fact, don't expect the recovery to begin any time soon.

That's because the mess we're in doesn't have a quick fix. Changing the tax laws doesn't make a mortgage payment. The federal government didn't make the mortgages, and it can't fix the bad ones. It can help, but not much. Tax laws can help promote new purchases, but the mortgage crisis is huge, much larger than anyone could have imagined a year ago. There were more subprime loans made than initially estimated. But remember that it's not only subprime loans that are contributing. There are also regular loans that are defaulting as unemployment increases.

In an attempt to curb all the 'hot money' flowing into China, the Chinese government will start checking exporter's foreign exchange settlements. Government control of the exchange rate has what has created this problem in the first place. The way to curb this problem is for the Chinese to freely float their currency and let it appreciate to the level that the market thinks it should be trading it.

The government is desperate to cool the flow of money coming into to China as it's trying to fight surging inflation. According to an article in Bloomberg: " China's foreign exchange reserves, the world's largest, surged 40 percent to a record $1.68 trillion in March from a year earlier, according to the latest official data. The excess cash flooding the financial system may stoke 12-year-high inflation in the fastest-growing major economy."

Most analysts are of the opinion that these checks are impractical and won't solve the problem. How many people will the government have to hire to wade through all these transactions? On the other hand maybe this is how China will solve the problem that they will have after the Olympics finish, and the government works projects come to an end. They can hire all of the unemployed and have them check all the transactions.

The real solution: Float the Yuan.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 7/3/08.

These days, European Central Bank President Jean-Claude Trichet isn't too popular in currency market circles, if one trader is any indication.

Trichet, a legendary inflation hawk, campaigned for and secured a quarter-point interest rate increase Thursday, to 4.25%, in the ECB's key, short-term interest rate, the refinance rate. Many economists thought Trichet's action was premature, despite Europe's 3.7% annualized inflation rate, and that it could spell further economic slowing Europe. Unbowed, Trichet plowed ahead.

With the above as a backdrop, many currency traders, Andrew Resnick among them, plowed ahead with euro-long trades on the calculation that a higher interest rate for the euro will cause the euro to rise. Resnick went long with the euro in the euro-dollar currency pairing.

But then what did Trichet do? He stated at the regular post-ECB rate decision press conference that he has "no bias" and that "we have no pre-commitment" to raise rates further - - signaling that one interest rate increase may be enough, Bloomberg News reported.

The result? The euro plunged versus the dollar after his comments: it fell 1.2 cents - - a large price move in the currency market - - to $1.5758 Thursday morning.

And with it plunged Resnick's profits for the day. All his trades were stopped-out for losses.

'Trichet is making many friends among traders'

"Trichet," Resnick said, "isn't making many friends among traders, and probably not among business executives and economists as well." Resnick followed his evaluation of Trichet's social standing with several candid and frank, descriptive, colorful comments about the ECB president that can't be published here. Suffice it to say that Resnick is not happy with Trichet's two-step.

In a move that surprised almost no one, the European Central Bank increased its key interest rate, the refinance rate, a quarter point to 4.25%. The increase brings the refinance rate to its highest level in seven years.

The currency market, which for the most part had already factored-in the ECB rate increase, did not react initially following the decision. The euro was virtually unchanged versus the dollar at $1.5882.

The other major currency pairings also held their ground. The dollar was unchanged against the pound at $1.9884 and the dollar rose slightly, up 0.10 yen to 106.25 yen, versus Japan's yen.

Economist: Trichet 'jumped the gun'

London-based economist Mark Chandler told BloggingStocks Thursday the ECB's decision was no surprise, but that doesn't decrease his disappointment with the ECB's stance.

"I afraid I'm going to really disagree with this one. I understand where [ECB President Jean-Claude] Trichet is coming from, but he's jumped the gun from my perspective. He could have waited another quarter," Chandler said. "There's a real concern now he's going to throw Europe into a recession like America, and if the dollar continues to fall against the euro, his rate increase won't lower inflation all that much. I don't like that bargain at all."