A slack attack in Bend, Oregon

The sharp transition from boom to bust in our new home town of Bend, Oregon is apparently so interesting these days that the Wall Street Journal saw fit to send a couple reporters out here to have a first hand look (maybe doing a little hiking, kayaking, or golfing in their spare time), resulting in the following Page 1 story($) in today's paper.

Slack Attack: Fed Faces Test on Inflation
By SARA MURRAY and JON HILSENRATH
BEND, Ore. -- Tens of thousands of people who moved here in the past decade saw a booming real-estate market and plentiful jobs amid the mountains of Central Oregon. Now they see slack.
A year and a half of recession has left local manufacturer Bright Wood Corp. with too much capacity at its plants that make window and door components. Bright Wood has laid off nearly half of its work force, shut an 80,000-square-foot factory in Bend, and sold or stored its extra equipment.

Additional underutilized industrial space, housing and workers are apparent across town. More than 9,000 people have lost jobs since mid-2006. Some 29% of homes are vacant. "For Lease" signs hang on store windows near the town's main drag, Wall Street.

Maybe that was part of the attraction for these two New Yorkers - the town's two main streets are named Wall and Bond.

From here, they go on to talk about "slack" in the economy and how that might relate to deliberations about inflation at this week's FOMC meeting which is an odd combination to be sure - Bend, Oregon and the Federal Reserve - but one that makes good sense to me for obvious reasons.

As for inflation, there would appear to be so much "slack" around here these days that no one should be too concerned about the price of anything going up for some time.

Slack is important to their equation because, in theory, it should suppress wages and prices and keep inflation down. But if the Fed misreads the dimensions or significance of slack, it could unleash an unwelcome bout of rising prices.

The risk of inflation is significant. The federal government is running budget deficits on a scale last seen during World War II, while the Fed has pumped more than $800 billion into the banking system. Banks haven't been lending this money freely so far, but once they start, it could spur economic activity and send prices rising. One signpost of gathering inflationary fears is that the price of gold, often seen as a hedge against inflation, has soared by more than 40% since last October to more than $1,000 an ounce.

Yeah, might as well throw gold into the mix while they're at it - a trifecta!

They also mention foreclosures, which, I guess if you write about Deschutes County today, you have to cover that topic. The number of default notices tripled in the last two years and more than half of the modest number of sales in August were distressed sales.

And they note that the FDIC was here not long ago to have a close look at the books kept by Bank of the Cascades, one of the areas largest banks with a loan committee that probably made a few too many construction loans a few years back.

These two probably won't be the last East Coast reporters to stop by here to see what some now refer to as the "poster child" for the housing boom gone bust.