Kass: The Headwinds Keep Getting Stronger

• True inflation level: Just as job growth is deteriorating, the real level of inflation is also far worse than reported by the Bureau of Labor Statistics. While the costs of food, gasoline, tuition, health and home insurance and medical care are skyrocketing, the government contends that the core rate of inflation is only about 2%.

  Using the methodologies to calculate the CPI employed by the government prior to the Clinton presidential years, John Williams' Shadow Government Statistics newsletter calculates that the CPI would have been +6.2% (year over year) in March. Probably somewhere between the two statistics lies the truthful measure of inflation. Regardless of which number represents reality, real income (especially in the low- and middle-income population) will be under continued pressure in 2007-08.

No Silver Lining

Last Friday night on "Kudlow & Company," Larry Kudlow finally admitted that my expectations of a consumer-led slowdown might be realized but suggested that non-U.S. economic growth was the silver lining to the impending doom I envisioned. I couldn't disagree more with the general notion -- and newest paradigm -- that the world's economies are independent of the condition of our domestic economy.

This notion of an economic decoupling will have its real test as the slowdown in consumer spending (which accounts for more than $2 trillion, or 20% of the global economy) accelerates over the balance of 2007. Moreover, the European Central Bank and the central bankers in Japan and China are likely to continue to raise reserve requirements and boost interest rates in attempt or slow down their rapidly growing economies (and the attendant climb in inflation rates).