But more on that in a minute.
The government reported today that wholesale prices jumped the most on a year-over-year basis in 27 years.
The Producer Price Index rose 1.2% after gaining 1.8% in June. But the core index - prices stripped of food and energy - rose 0.7% after 0.2% in June.
Even with oil prices falling to about $112 a barrel these days, energy prices still rose 3.1% in July, about half the 6% increase energy prices saw in June.
Both the PPI Index and core price increases were much higher than expected by analysts.
In more bad financial news, major retailers like Home Depot, Target, Staples, and Saks reported lower sales, late credit payments and continued expectations for poor sales.
In real estate, housing starts dropped to a 17 year low, sending stock futures down just a day after the American financial markets fell sharply on fears that Fannie Mae and Freddie Mac will have to be nationalized.
In the scariest news of the day, former chief economist at the IMF Kenneth Rogoff said yesterday that the worst is yet to come for the U.S. economy and a major U.S. bank or two is probably going to go under before the financial mess is all over:
"Credit market turmoil has driven the U.S. into a recession and may topple some of the nation's biggest banks, said Kenneth Rogoff, former chief economist at the International Monetary Fund.
"The worst is yet to come in the U.S.,'' Rogoff said in an interview in Singapore today. "The financial sector needs to shrink; I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job.''
The U.S. housing slump has triggered more than $500 billion of credit market losses for banks globally and led to the collapse and sale of Bear Stearns Cos., the fifth-largest U.S. securities firm. Rogoff said the government should nationalize Fannie Mae and Freddie Mac, the nation's biggest mortgage-finance companies, which have lost more than 80 percent of market value this year.
So here we have inflation running red hot despite falling commodity prices, housing starts plummeting again even as home values continue to fall, retailers like Home Dept and Target reporting poor sales and late credit payments, and the former economist of the IMF saying a major financial institution or two is going to go under here in the U.S. - it sure sounds like things are bad, right?
Uh, uh - not if you're Don Luskin, financial adviser to the John McCain campaign.
You see, Mr. Luskin, a frequent guest on Kudlow and Company, just visited Disneyland and had to wait on a long line to ride Space Mountain.
Long lines at Disneyland, Mr. Luskin writes, prove that the country is not in recession and everything is just fine economically:
There's simply no way this country is in a recession with people spending money like mad amusing themselves at Disneyland. I've been coming here frequently for years, during good times and bad, having grown up in Southern California. I've never seen crowds like this. Not here, not anywhere — not even on the Tokyo subways.
There were times when the streets of the Magic Kingdom were so thickly thronged with human bodies that one simply couldn't move. Rides were breaking down. Restaurants and snack vendors were running out of food. There wasn't enough staff to get people properly loaded onto the rides that were working. It was bedlam.
It actually would have been a miserable experience, if we hadn't lucked out and been given a rare and highly coveted "Dream Fastpass," a plastic badge you wear around your neck that lets you bypass the hours-long lines at the most popular rides.
Mr. Luskin goes on to write that:
The risks that threatened the economy with potential recession are receding. The credit crisis is now a year old, and at this point is very well understood and contained thanks to smart moves by the Federal Reserve and the Treasury. There are still problems in the banking system, and there may be problems for years. But the risk of outright meltdown is now off the table, so these problems will get solved.
The housing crisis is probably near an end. As I wrote then, it hasn't been reported, but by some important measures the national housing market bottomed in February and has been on the upswing ever since.
Gee, Luskin's comments on the economy sound strangely akin to what Phil Gramm, another McCain economic adviser, said about the economy just about 6 weeks ago:
Phil Gramm, a former senator and top economic policy adviser to presumptive GOP nominee John McCain, has suggested in an interview with the Washington Times that the U.S. is in a "mental recession" as opposed to a real one.
"You've heard of mental depression; this is a mental recession," he told the newspaper. "We may have a recession; we haven't had one yet."
"We have sort of become a nation of whiners," he added. "You just hear this constant whining, complaining about a loss of competitiveness, America in decline" despite a boom in exports.
"Misery sells newspapers," said Gramm, who argues the U.S. has never been more dominant. "Thank God the economy is not as bad as you read in the newspaper every day."
While McCain let Gramm go after the above comments became an embarrassment to the campaign, you can be sure the sentiment within the McCain campaign remains that all is well with the American economy and these people who are "whining" about rising prices and falling wages need to just to stop crying and listen to economic experts like Don Luskin tell them just how good things are.
In other words don't believe your eyes or your wallets, believe the magical thinking of Don Luskin (see here for Luskin's dismal track record) and Phil Gramm.
Truly magical thinking in the magical kingdom known as the McCain Campaign.
If you've liked the magical thinking of the last 8 years on the economy, the Iraq war, disaster relief, etc., you'll love the next four or eight years in a McCain administration where guys like Phil Gramm and Don Luskin will be making the economic decisions that impact our lives.