Here Comes Inflation
By DICK MORRIS & EILEEN MCGANN
Published on
DickMorris.com on April 18, 2011
In our book
Revolt!, we warn that inflation may well be the dominant legacy of
the Obama presidency. While he had Bush's help in creating high
unemployment, he has driven us into inflation all on his own.
The latest data indicates that prices soared in March at an annual rate
of 6.5 percent, by far the highest increase in decades. Half of
the increase was in energy prices and one half point in higher food
costs. While the Federal Reserve Board focuses on the "core"
inflation rate, that excludes these volatile items, American consumers
dip into the same pocketbook to pay for food and fuel that they use to
pay other prices.
And there is little likelihood of any leveling off of the prices of
either food or fuel. The former is driven by the use of food for
energy, diverting corn and other food crops from nutritional use.
The later is animated by the instability in the Middle East and North
Africa, an international crisis that is likely to worsen in the coming
year. Indeed, should the disease that has brought down regimes in
Egypt, Tunisia, and Yemen and is fighting to topple them in Bahrain,
Syria, and Libya spreads further into Saudi Arabia, we could face huge
increases in energy costs.
And don't forget the likely upward pressure on interest rates. The
Fed is likely to end its QE-2 (quantitative easing 2) program in June.
No longer will it buy mortgage backed and Treasury securities from banks
into order to pump more money into the system. Once the printing
press stops, the Treasury will have to start borrowing real money from
real lenders and pay real interest. It will no longer be able to
borrow back the money the Fed prints at nominal interest rates.
With Washington needing to borrow $40 billion a week to finance its
deficit, the upward pressure on interest rates will be severe.
Then, there are health insurance costs. With the onset of the
requirements of Obamacare, the increase in premiums has averaged twenty
percent, further raising costs of business.
Faced with these increases in fixed costs, businesses will have to raise
prices. But nobody will be able to pay them because the economy is
terrible. That will trigger a loss of customers and ever higher prices
to make up the gap. This stagflation cycle is now upon us and will
wipe out any gains that the so-called recovery may offer.
Annual inflation of 6.5% is just the beginning, just like $5 gas is just
the beginning. The inflationary forces Obama has unleashed by his
record deficits and his virtual tripling of the money supply will batter
the economy with a violence that will make his re-election impossible.
The storm is just starting.
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(c) COPYRIGHT 2011, DICK MORRIS AND EILEEN MCGANN.
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