Inflation strikes!

When Mrs. Crucis and I had been married only a few years, the Viet Nam War ended.  Nixon had been elected and was making good on his promise to end the war.  The peace talks finally bore fruit.  But another fruit, one created by LBJ and the democrats had ripened too.  Inflation and debt.

Most citizens now don’t remember those days. The days of high, over 10%, inflation, interest rates over 20%, and wage and price freeze.  It happened at the end of WW1, again after WW2, and in 1976, with Jimmah Cahtah in the White House, instead of using the wisdom of past presidents to keep their hands off the economy, Jimmah had to meddle.  Home mortgage interest rates skyrocketed to nearly 25%.

The turmoil continued until Reagan was elected.  Within two years, interest rates fell like a rock off a cliff, employment was up and the recovery was well underway.

I scanned the news websites this morning and what do I see.  Jimmah Cahtah redux.  For those of you who don’t know, the Consumer Price Index measures inflation.

The cost of living in the U.S. rose in February by the most in 10 months, reflecting a jump in gasoline that failed to spread to other goods and services.
The consumer-price index climbed 0.4 percent, matching the median forecast of economists surveyed by Bloomberg News, after increasing 0.2 percent the prior month, the Labor Department reported today in Washington. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.1 percent, less than projected.
The biggest jump in gasoline in more than a year accounted for about 80 percent of the increase in prices last month, leaving households with less money to spend on other goods and services.

The biggest jump in gasoline in more than a year accounted for about 80 percent of the increase in prices last month, leaving households with less money to spend on other goods and services.

The government, for decades, has manipulated reports of inflation by dropping data for the most volatile items affected by inflation, fuel and food.

The “core” items mentioned in the article are those that do not include food and fuel.  When you add food and fuel, the CPI doubles, more than double if you delve into the figures.

One reason why the price of oil has spiked is inflation.  The Dollar is still the currency of oil.  When the fed pumps out more dollars, it takes more dollars to buy the same amount of oil, i.e, the price goes up.  Some analysts have declared if the fed hadn’t run off more dollars in their so-called “Quantitative Easing,” the price of oil would be in the $80 range instead of the current price over $100 a barrel.  In short 20% of the increase of oil can be attributed to inflation.

Dollar Inflation the Primary Cause of Rising Oil Prices

I’m under strict instructions, and have been from the beginning, to not talk about the dollar.” -White House Deputy Press Secretary Dana Perino, March 17, 2008 – Link

There is a direct relationship between Dollar value and oil prices. All crude oil purchases worldwide have been conducted exclusively in U.S. Dollars for over thirty-five years. [1] When Dollar value falls via inflation (i.e. the creation of money by the Federal Reserve and other banking mechanisms), oil prices rise. [2] [3] [4]Petrodollar Inflation; it occurred during the 1970′s oil ‘price shock’, and it is occurring right now. [1] This phenomenon could be called
Oil is a critical economic and strategic resource – because every country needs oil to develop and prosper, they also need U.S. Dollars. This has raised the demand, and value, of the Dollar worldwide for several decades. [1]
However, the U.S. Dollar is continuously devalued (inflated) by Federal Reserve and U.S. government monetary policies. [5] Due to recent ‘super-inflation’ of the Dollar, oil producing nations are losing money – or rather, wealth – by selling oil in Dollars. To prevent losses, oil producing nations will sell some or all of their oil in other currencies (Euros, for example). This further devalues the Dollar, since oil buying countries no longer need them to purchase oil.

So when you hear Bernake talk about more “Quantitative Easing,” know, too, your gas at the pump will be going up as well. 

To paraphrase, Obama’s Pastor and mentor, Rev. Jeremiah Wright, “Obama’s chickennnsss!…have come home!…to roost!”

1 thought on “Inflation strikes!

Comments are closed.