Enjoy the decline!

Jim Rogers: "Driving down the value of our own money is lunacy."

Ben Bernanke's Dollar

Printing Press Ben

One of the best video's I have seen from the Ludwig Von Mises Institute that explains the role of the Federal Reserve and its current open market operations; also covered is fractional reserve banking and why Bernanke is a very dangerous man.

Inflation as a corrosive moral agent

Words of great insight and wisdom from Theodore Dalrymple. Inflation will whittle away your savings and soul:

At the time, I gave no thought to the effects of this inflation, which tended to be discussed in purely economic terms—experts would ask, say, whether inflation was compatible with satisfactory economic growth. In a naive way, I assumed that since most people’s income tended to rise with inflation, there was nothing to worry about. I did not suffer personally because of it, nor did most of the people I knew. If a product once cost y and now cost 10y, what did it matter, so long as your income had gone up by ten times, too? Since people seemed better off, at least measured by what they could consume, one could even assume that incomes had risen faster than inflation.

Yet this was a crude way of looking at things, as my father’s fate should have instructed me. He sold his business in the sixties, at the end of the period of price stability that had reigned throughout his life, for what then seemed a large amount of money. He was a man who, for both temperamental and ideological reasons, held a deep contempt for financial speculation and wheeling and dealing, with the result that he did nothing as inflation inexorably eroded his savings. He grew poorer and poorer through the remaining 30 years of his life, and might have sunk into poverty had he not moved into a house that I owned.

Ron Paul vs. Bernanke

Watch as Ron Paul poses some very incisive questions and comments to Ben Bernanke during a recent congressional hearing. Also notice how Bernanke, a very intelligent and learned man, simply does not understand that he is part of a government bureaucracy that is slowly dragging the American economy into the hands of big government power.

Mexico imposes price controls on food

I guess Mexican president Felipe Calderon has taken a cue from Venezuela’s Hugo Chavez and has decided to ruin his country’s food supply. How long before we start to read about shortages in some of the 150 foods targeted for price control? Well, at least this hapless experiment is set to lapse after six months:

Food manufacturers promised Mexico's government to freeze prices on more than 150 food products Wednesday to help families cope with rising costs.

President Felipe Calderon announced that prices for goods such as cooking oil, flour, canned tuna, fruit juices, coffee, ketchup and canned tomatoes will remain fixed until Dec. 31. (Read More)

Inflationary nightmare

Zimbabwe inflation estimated at more than 1,000,000%

Independent finance houses have said in an assessment that annual inflation rose this month to 1,063,572% based on prices of a basket of basic foodstuffs. As stores opened for business on Wednesday, a small pack of locally produced coffee beans cost just short of Z$1-billion. A decade ago, that sum would have bought 60 new cars.

This is an example of the economic havoc that runaway inflation can inflict.

Gold vs. Dollar

Here's a video most Ron Paul supporters will love and understand.

The ugly face of inflation.

From The Wall Street Journal (subscription may be required):

“The Federal Reserve is sharply cutting U.S interest rates -- the opposite of the usual response to rising inflation -- to prevent the housing bust and credit crisis from causing a deep, prolonged recession. That's making the global response to inflation more complicated.”

“On Wednesday, the World Bank estimated global food prices have risen 83% over the past three years, threatening recent strides in poverty reduction. The IMF forecast consumer prices in emerging and developing countries will rise 7.4% this year, the most inflation since 2001 though still well below the double-digit levels of the recent past.”

“As crops are sold for alternative-energy production, food prices have soared: The price of rice, the staple for billions of Asians, is up 147% over the past year.”

Comment: In another example of how the global economy is intrinsically tied together, we now have the threat of record high global inflation. Every time the Fed makes a move downward on interest rates, countries that have their currency tied to the dollar get a kick up in inflation. Of course, the two primary forces in all of this are food and energy prices. And I do believe that we are moving into an era where these two drivers are going to have a deleterious effect on the world economy for some time to come. As long as the U.S. continues to subsidize corn for use as ethanol and as long as the global energy infrastructure stays in its current modality, we are going to see slightly higher global inflation for some time. In this sense, I disagree with the articles rosy conclusion that an economic slowdown in the U.S. and Europe will quickly stabilize inflation as has previously occurred in history. The IMF also noted that world economic growth has slowed due to the financial crises in the U.S. The theory of a “decoupled” world economy (from the U.S. particularly) seems to hold little value.

The Rise of Bread.

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The above graph is from the BLS and it tracks bread prices. More bad economic news from The Boston Globe:

After nearly two decades of low food inflation, prices for staples such as bread, milk, eggs, and flour are rising sharply, surging in the past year at double-digit rates, according to the Labor Department. Milk prices, for example, increased 26 percent over the year. Egg prices jumped 40 percent.

Escalating food costs could present a greater problem than soaring oil prices for the national economy because the average household spends three times as much for food as for gasoline. Food accounts for about 13 percent of household spending compared with about 4 percent for gas.

This is proof that our economy is in trouble. Some of my favorite economic websites have tried to stay positive during the last several months. But I think that there are simply too many indicators that point to a likely recession (there, I said it). Even if we avoid two quarters of negative growth, there is a real possibility of flat growth, high inflation or stagflation. When gas and grocery prices are rising faster than your paycheck yet the economy is still able to employ you but is not strong enough to enable you to ask for a raise high enough to cover rising inflation costs, we may be in a state of stagflation. Unfortunately, our current government policies are not directed towards sound financial solutions. We may not see an end to our current economic weakness for some time.

Gold as the new currency?

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The price of gold has been surging faster as of late. It’s enough to make a connoisseur of Bling Bling worry his pretty little head over. As gold is used as a hedge against inflation, it is worrying that a slowing economy coupled with a depreciating dollar could lead to some very painful economic times. The price of gold has gone from $250 an ounce to over $950 during a ten year time span without any significant change in the gold supply; this means that too much money and too much credit is chasing supply and driving up prices. Hence, what we have is monetary inflation. The dollar is the world’s reserve currency and as it continues to slide downward, the cost of goods and services for Americans will get pricier. Additionally, any raises that you get at work will probably be eaten away by inflation and a depreciating dollar. My wish is that the Fed finally takes control of the situation and does not lower interest rates to appease Wall Street. The last thing we need is more printed money in this economy because it is causing inflation. In any case, get those gold rims before the price of gold hits 1,500 dollars an ounce. You’ll thank me later.
See a related article on this topic in today's Wall Street Journal