Inflation Is Baked In The Cake

Forbes ^ | 04/07/10 | Rich Karlgaard

[TigerLikesRooster]

Inflation Is Baked In The Cake

April 7, 2010 - 2:30 pm

The end of imported deflation plus peak oil plus a dovish Federal Reserve is an inflation formula.

Now add the debt bomb into the mix. The accumulated national debt is $12.8 trillion (about 90% of GDP) to which $4.1 billion is added every day. When debt surpasses GDP, early next year, the event will trigger headlines and a national discussion of what to do about it. Obama will renew his efforts to pass a value-added tax (which I don't think will pass this election year). But with Democrats holding much thinner majorities in Congress, or possibly none at all, the VAT-tax will go nowhere. Unlike Bill Clinton, Obama will dismiss any push for supply- side incentives in the hopes of growing the economy faster and along with it the tax revenue base. That will leave only one debt-busting option on the table. America will take door number three and inflate its way out of its debt. The Obama administration will make the political calculation to screw our creditors--older Americans and Chinese, basically. Older Americans don't like Obama anyway, and the Chinese don't vote.

So I think we will see 4% CPI inflation by year's end going toward high single digits (or more) by the decade's second half and possibly sooner. A 4% CPI means the real rate inflation will be much worse for many people, since CPI is an average of consumer prices for an average urban household. If you are not buying a flat-panel screen on Amazon or a hotel room on Priceline, but rather are just trying to survive by driving to work, putting food on the table, and paying your kids' medical and school bills, you are already suffering higher inflation than the CPI.

[TigerLikesRooster]

P!

[meyer]

We aren’t at “peak oil” - we are at a government-induced artificial oil supply limit.

[momincombatboots]

They do not have to pass anything. They can just deem it and we will learn to love it later. Deemocrats!

[bruinbirdman]

"We aren’t at “peak oil” -"

Oil, Oil Everywhere - Occidental Petroleum's California gusher

yitbos

[familyop]

Is Mr. Karlgaard a Swede from Minnesota? ;-)

If we see much inflation, IMO, it will be during the more obvious end of our sovereign debt crisis. The dollar will still be deflated domestically (in the USA) while being inflated internationally (low currency). In other words, oil and foreign product prices will become higher for Americans, while they will continue to spend less.

And if our government does not shed huge numbers of employees, the default will be unavoidable. If Mr. Karlgaard is correct about his prediction of debt percentage to GDP, then debt will surpass GDP earlier than predicted from sources, "BofA Merrill Lynch Global Research, IMF" ("Chart 3," presented by Bill Gross of Pimco/Allianz for January, 2010, in his article, "Let's Get Fisical").

Watch for a possible Treasury bond collapse followed by much decreased business activity in the USA in the near future.

[preacher]

The “solution” will be to cut spending or to raise taxes. A Value Added Tax is already being talked about.

[mosesdapoet]

Significant post from a significant source. Big trouble ahead for US.....To paraphrase Fred the Great “The besy way to punish a country... let it be ruled by a professor”

[preacher]

GOP calls O’s tax toxic VAT of acid
http://preview.tinyurl.com/yetfnod

[rbg81]

Watch for a possible Treasury bond collapse followed by much decreased business activity in the USA in the near future.

---

The Fed will “buy” the excess Treasures with $$ it is authorized to print from Congress. People are going to get real unhappy when the price of everything goes up and jobs continue to get shipped overseas (due to increasing regulations and mandates). Obama is betting that he can shift the blame to others while continuing to hand out “freebies”.

[sergeantdave]

I measure inflation by watching the price of my favorite health food - potato chips.

Three years ago I could buy the store brand potato chips - 16ozs. for 99¢.

The store brand has disapeared and now I’m forced to buy national brands - 10 to 11 ozs. for $3.99.

This week I saw some wierd yuppie brand - avacado, banana and catsup flavored, I think - $3.99 for 7 ozs.

Inflation has already arrived, at least in my world.

[familyop]

"The Fed will “buy” the excess Treasures with $$ it is authorized to print from Congress."

In that case, the money will be as worthless to government employees and associated recipients as it will to the rest of us. ...moreso, because they're indebted spendthrifts.

"People are going to get real unhappy when the price of everything goes up and jobs continue to get shipped overseas (due to increasing regulations and mandates)."

It won't bother me at all. Those regulations and mandates are passed by the relatives, employees and friends (academics, government employees, retirees, all) of those who've already moved business overseas and those who can afford to control their politicians. Let 'em eat each other up.

The default will take out much of the trash, then we'll see small government.

[Freddd]

To: TigerLikesRooster
I measure inflation by watching the price of my favorite health food - potato chips.

Three years ago I could buy the store brand potato chips - 16ozs. for 99¢.

The store brand has disapeared and now I’m forced to buy national brands - 10 to 11 ozs. for $3.99.

This week I saw some wierd yuppie brand - avacado, banana and catsup flavored, I think - $3.99 for 7 ozs.

Inflation has already arrived, at least in my world.

11 posted on Thursday, April 08, 2010 7:42:21 AM by sergeantdave

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Many of us are feeling the squeeze at the supermarket these day, and all of us are feeling it at the gas pump. The government continues to deny inflation, but I
see the results of it in my grocery bill and my gas tank.

The official USDA cost of food has risen to $600 a month for a family of 4 on the Thrifty Plan!
(a lot of people don’t know what a ‘thrifty’ plan is)

A few short months ago a can of Pringles in my area sold for .99Cents. Now they are a $1.50 and have been for months and months.

[algernonpj]

"The Consumer Price Index"

[Diana in Wisconsin]

What’s that old saying? ‘You can catch more bluegills with potato chips than vinegar?’

But you catch the most with salt-n-vinegar potato chips, I’ll bet! :)

I see prices all over the map; I do a rather large shopping trip once a week because I’m on 6 day work weeks now, and don’t have time to run to the store for just a few items.

The ‘Loss Leaders’ have been incredible. Large cans of coffee for under $4, etc. The grocers are already doing what they have to do to lure people into their stores.

For the savvy shopper, there are bargains to be had. But, that’s not gonna last long...

[Freedom_Is_Not_Free]

I always appreciate reading material regarding inflation/deflation. I am still a confused mess as to which way we go. Some folks are convinced one way or the other. I’m baffled.

[rbg81]

Agree—its not a rational policy, but that is what HAS BEEN happening. I really think everyone in Power is just trying to stave off the inevitable crash by any means necessary.