Tuesday, April 05, 2011

There is no inflation

A few days ago I read an interesting financial report. For context, it's important that everyone understands that the Fed continues to print money and dump it into the US economy at zero interest rates. This money printing will supposedly end this summer, unless they decide to go another round which isn't completely out of the question. They have kept interest rates at zero in order to stimulate the economy. And they also tell us not to worry because there are no signs of inflation. Repeat...don't worry (says the Fed) there are no signs of inflation.

Now, back to the report. The author did some price comparisons. He recorded the current price for 88 different commodities and compared today's price to one year ago. Of those 88 commodities, 85 of them have increased significantly in price. Only three: natural gas, eggs and chickens - have dropped in price. Food prices are going up. And since every commodity is priced in US dollars, the increase in price suggests either: 1) increased demand, 2) decreased supply or 3) declining value of the dollar. There is no reason or evidence to support #1 or #2, so what does that leave to explain the rising price of food? Remember, the Fed says inflation is not a worry.

Personally, I can verify the cost increase for food. My family has seen our grocery bill jump 25% over the past year. There are no major changes in this household to explain such a jump in cost.

The financial report goes on to discuss the stock market. The market has done well since the housing collapse. Rebounded nicely. But a crunch of the numbers reveals some interesting facts. The sector that has driven the market rebound has been the financial sector...the banks. They are making big profits right now mainly because they are essentially getting free money from the central bank and turning around to lend it at a substantial profit. What's concerning is that when you factor out the financial sector, the remainder of the stock market has actually dropped.

So when it comes to productivity, making things, providing services, and paying for those goods and services, the market is down. The banks are keeping things afloat by moving money from the Fed to the economy. So, is this economic growth real?

But enough of that, let's get back to food prices and inflation. The fact about rising food prices and inflation is that those who get hit hardest are those with the least money. I find it ironic that the Dems love to think of themselves as champions for the poor because of their government programs, yet fail to realize that their economic policies that drive inflation hit the poor the hardest. Either they fail to realize it, or they just don't care. Yet, they are the champions for the poor.

And since it's the poor who get hurt the most by rising food prices, where would we see such an impact first? Yes, we have poverty here but our "poverty" is nothing compared to the poverty of the third world. So it seems that when food prices jump the people of the third world will feel it the hardest. Perhaps it would even cause some unrest. Perhaps maybe a revolution.

We aren't seeing anything like that in the world right now are we?

Remember, the Fed says don't worry about inflation. And if anyone out there is taking them for their word then you have some very hard times coming your way. Protect yourselves. The dollar is on life-support.

No comments: