Gulf of Mexico Oil Spill Blog Stealth Inflation

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The Quiet Hyperinflation of 2011

By Michael Lombardi

Inflation in Venezuela is running at 27.4% a year. The country devalued its currency earlier this year to deal with the rapid inflation rate.

Yesterday, the European Union statistics office in Luxembourg said that European producer-price inflation jumped 6.7% in March from a year earlier—the fastest pace in two and a half years.

In China, the government keeps raising interest rates to fight off its inflation rate, which sits at a 39-month high of 5.4%. China is the second largest economy in the world.

Globally, the price of light crude oil is up 37% so far this year. Coffee futures prices are up 100% in the past 12 months. Despite weakness in precious metals this week, as the Comex raised the margin requirement for trading silver futures, precious metals are at non-inflation adjusted record highs.

So why is the consumer price index that the government reports each month continuously showing an inflation rate under two percent?

Here are the two worst kept secrets about the inflation rate: The official inflation rate we get in the monthly Commerce Department reports does not include the devaluation of the U.S. dollar. Secondly, the Federal Reserve tells us that it focuses on the core inflation rate, which excludes energy and food prices.

The greenback is very close to breaking below a record low against a basket of six major foreign currencies ($USD on most charting services, referred to as the U.S. Dollar Index). The world’s most followed stock market index, the Dow Jones Industrial Average, is priced in U.S. dollars. If we took that index and priced in hard money (gold), the Dow Jones Industrial Average would be down 44% since October 2008.

Oil and food are things we cannot live without. Hence, excluding the hyper price rise in both items does not reflect the true rising cost of living in America today. Fill your gas tank today and see how much it costs you compared to a year ago. Take your family for dinner at a decent restaurant and see how much more it costs you than two years ago.

To my theory of a quiet devaluation of the U.S. dollar, which I started talking about years ago (and which many in the media have picked up and written about in the past few months), you can add a theory of quiet hyperinflation. Unfortunately, we all know the only way rapid inflation can be dealt with, a lesson former Fed Chairman Paul Volcker taught us very well in the early 1980s.

source: The Quiet Hyperinflation of 2011

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