Stagflation 2011: Why It Is Here And Why It Is Going To Be Very Painful

Are you ready for an economy that has high inflation and high unemployment at the same time? Well, welcome to “Stagflation 2011”.  Stagflation exists when inflation and unemployment are both at high levels at the same time.  Of course we all know about the high unemployment situation already.  Gallup’s daily tracking poll says that the U.S. unemployment rate has been hovering around 10 percent all year so far.  But now thanks to rapidly rising food prices and the exploding price of oil, rampant inflation is being added to the equation.  Normally inflation is a sign of increased economic activity, but when the basic commodities that we depend on to run our economy (such as oil) go up in price it actually causes a slowdown in economy activity.  When the price of oil goes up high enough, it fundamentally changes the behavior of individuals and businesses.  Suddenly certain types of economic activities that were feasible when oil was very cheap are not profitable any longer.  When the price of oil rises to a new level and it stays there, essentially what is happening is that more “blood” is being drained out of our economy.  Our economy will continue to function when there are higher oil prices, it will just be a lot more sluggish.

In some way, shape or form the price of oil factors into the production of most of our goods and services and it also factors into the transportation of most of our goods and services.  A significant rise in the price of oil changes the economic equation for almost every business in the United States.

Today, the price of WTI crude soared past 100 dollars a barrel before closing at $98.10.  The price of Brent crude increased 5.3 percent to $111.25.  The protests in Libya are certainly causing a lot of the price activity that we have seen over the past few days, but the truth is that oil has been going up for a number of months.  Right now we are only seeing an acceleration of the long-term trend.

Things are likely to get far worse if the “day of rage” planned for Saudi Arabia next month turns into a full-blown revolution.  Up to this point, the revolutions that have been sweeping the Middle East have been organized largely on Facebook, and now there are calls all over Facebook for the “Saudi revolution” to start on March 20th.

That date is less than 4 weeks away.  If Saudi Arabia plunges into chaos, the price of oil is going to go through the roof.

A rapidly rising price for oil is really bad news for the U.S. economy, because it is going to mean lots of inflation.  Unfortunately, this also comes at a time when the economy is also feeling the inflationary effects of more quantitative easing by the Federal Reserve.

So if rising oil prices are going to cause more inflation and if rising oil prices are also going to cause our economy to become even more sluggish, what does all of that add up to?

It adds up to stagflation.

Wikipedia defines stagflation in the following manner….

In economics, stagflation is the situation when both the inflation rate and the unemployment rate are persistently high.

This is going to rapidly become the “new normal” for America.  High oil prices are going to cause the cost of just about everything to go up, and high oil prices are also going to cause the economy to slow down thus making the unemployment numbers even worse.

It is going to be just like the 1970s all over again.

Only worse.

Economists differ as to how much rising oil prices affect U.S. GDP, but almost all of them agree that rising oil prices do cause a decline in U.S. GDP at least to some extent.

If American families have to spend $10 or $20 more each time they visit a gas station, that means that they are going to have less discretionary income.  They won’t be able to spend as much at the stores.

Not only that, but since the price of oil affects the price of almost everything else, Americans will find that their dollars have reduced purchasing power.

An oil crisis would force American families to stretch their already overburdened budgets even farther.

So where is the price of gasoline going from here?  Well, the average price of gasoline in the United States is rapidly sneaking up on the $3.20 a gallon mark.  Almost everyone believes that it is going to be going significantly higher.

Tom Kloza, the chief analyst for the Oil Price Information Service, was recently quoted in USA Today as saying that he believes that the average price for gasoline in the United States will reach somewhere between $3.50 and $3.75 a gallon by April.

As I wrote about yesterday, there are other analysts that believe that we are going to see $4.00 gasoline in the United States by the end of the year, and there are some that believe that we could see $5.00 gasoline if revolution sweeps Saudi Arabia.

If gasoline becomes that expensive and it stays there for a while, it is going to seriously start affecting the behavior of American businesses and American consumers.

Just remember what happened back in 2008.  Andrew Busch of BMO Capital Markets recently told CNBC the following….

“Remember when oil was last at $140 (a barrel), Americans reacted and cut the amount of miles they drove.”

Can you imagine what it would do to the economy if millions of Americans start sitting in their homes instead of doing their normal amounts of driving and flying?

In addition, one of the biggest problems with a higher price for oil is that it would cause our trade deficit to explode.  According to the U.S. government, more than half of the oil that we use is imported.  So every month we send the rest of the world billions and billions of our dollars and they send us massive amounts of oil.  We rapidly consume all of the oil they send us and we continually need more.  So we keep sending larger and larger amounts of money overseas and they keep sending us larger amounts of oil.  In the process, our national wealth is being drained at an astounding rate.  It is one of the greatest transfers of wealth the world has ever seen.

When the price of oil rises substantially, the transfer of wealth accelerates.  This is a very bad thing for the U.S. economy.  For example, when oil prices were above $100 a barrel back in 2008 our trade deficit for the year was almost 700 billion dollars.

It would be great if the Middle East would settle down and oil prices would start declining because that would really help out the U.S. economy.  Unfortunately, it does not look like that is going to happen.  Instead, it appears that we are steamrolling directly towards stagflation.  Anyone that lived through the stagflation of the 1970s knows that it is not a lot of fun.

The cold, hard reality of the matter is that without cheap oil our lifestyles are going to change.  Our economy was not set up to run on expensive oil.  If oil moves well above $100 a barrel and it stays there it is going to bring about significant societal changes.

For the rest of 2011, the price of oil will be the number one economic indicator to watch.  If it gets too high it is going to be an absolute disaster for the U.S. economy.

In The Future You May Not Be Able To Provide The Basics For Your Family Even If Everyone In Your Family Has A Job

Today, millions of American families are extremely stressed out because they are working as hard as they can and yet they find at the end of the month they still haven’t been able to pay all of the bills.  Unfortunately, things are only going to get rougher in the years ahead.  The U.S. government has reached a terminal phase of the debt spiral that it is trapped in, and the only way to keep the system going is to print more money, borrow more money and spend more money.  But won’t this cause horrible inflation eventually?  Of course it will.  That is why so many people around the world have so loudly denounced “quantitative easing 2”.  The Federal Reserve is just creating hundreds of billions of dollars out of thin air and is chucking all of this money into the system in a desperate attempt to get it moving again.  This is also why the Tea Party movement is so angry about the record amounts of government debt that are being piled up.  When the U.S. government goes into more debt, it creates more dollars.  As the Federal Reserve and the U.S. government flood the system with new dollars, it means that there are now more dollars chasing roughly the same number of goods and services, and that is a recipe for inflation.

Fortunately (or unfortunately, however you want to look at it), most of this new money is trapped in the financial markets right now.  The first people that get their hands on all of this new money are banks, financial institutions and the folks down on Wall Street and right now they are hoarding much of it and much of it is going to pump up the stock market.

That is one reason why we saw such a tremendous bubble in commodities in 2010.  It is also a key reason why we have seen such a stock market “recovery”.

But eventually all of this new money is going to get into the hands of average U.S. consumers and it is going to start pushing the price of everything up.

Ronald Reagan once said that inflation is “as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man.”  Ron Paul has called inflation a “hidden tax” on all of us, and that is exactly what it is.  All of the paper money that we are storing in the banks is losing a little bit of value every single day.  Over long periods of time, this loss of value becomes absolutely massive.  For example, did you know that the U.S. dollar has lost over 95 percent of its purchasing power since the Federal Reserve was created in 1913?

Unfortunately, as the Federal Reserve and the U.S. government continue to flood the system with new dollars in a desperate attempt to stimulate the economy, inflation is only going to get worse and worse and worse.

So enjoy the relatively tame inflation that we are enjoying for now.  The official U.S. government inflation rate has been hovering around 1 percent or so, but everyone knows that the official inflation rate is an absolute joke.  The government pulls different categories in and out of the inflation rate almost at will in an attempt to keep the numbers low.

One recent study that analyzed price movement of 86 products in Wal-Mart stores found that the “real” rate of inflation was approximately twice the “official” rate reported by the U.S. government.

Others are convinced that the official rate of inflation is even higher than that.  For example, John Williams of ShadowStats.com has closely studied inflation in the U.S. and he believes that it is currently hovering somewhere around 5 percent.

However, John Williams does not believe that inflation is going to stay at 5 percent for much longer.  He recently released a “Hyperinflation Special Report” for 2010 that everyone needs to read.  Personally, I do not agree with all of his conclusions and I do not believe that things are going to happen quite as quickly as he is projecting, but his overall analysis is sound.

The truth is that our financial system has now reached a terminal phase.  Just look at the chart below.  Really look at it.  How can any financial system survive debt that is rising this fast?  The printing and borrowing of money continues to spiral out of control with no end in sight.  It is hard to imagine any scenario in which we can even achieve a “soft landing”.  One way or another, this exploding debt is going to take us down…..

So are the politicians sorry that they have saddled us with all of this debt?

Well, just the other day Nancy Pelosi was directly asked this question and the following was her response….

“No, we have no regrets.”

In fact there are quite a few politicians running around in Washington D.C. that are still convinced “that deficits don’t matter” and that all this debt will never catch up with us.

Well, hold on to your hats, because this is going to be the decade when all of this debt really does start to catch up with us.

One of the ways that we are going to feel the pain is through inflation.

In the months and years ahead, wages will remain relatively stable and government entitlement payments will not increase much while prices for the basic things that American families need go through the roof.

Already we are starting to see some troubling signs of inflation.  In 2010, the price of almost every major agricultural commodity you can name shot up dramatically.  We are starting to see these price increases filter into the supermarket.  Some companies are trying to hide these price increases by shrinking package sizes.

Have you noticed this yet?  Have any of the packages that you buy regularly seemed to shrink in recent months?

Sadly, it looks like food prices are headed even higher.  According to a recent report by Reuters, world food prices hit an all-time record high in December….

World food prices rose to a record in December on higher sugar, grain and oilseed costs, the United Nations said, exceeding levels reached in 2008 that sparked deadly riots from Haiti to Egypt.

So what are you and your family going to do if a worldwide food shortage pushes food prices up significantly?

Another place where American families are really going to start feeling the pain is at the gas pump.

Do you remember back in October when I warned you that 100 dollar oil is coming?

Well, the price of Brent crude reached 95 dollars a barrel for the first time in almost two years on Monday.

Unfortunately, there are many who now believe that the price of oil is going to go a lot higher than that.

John Hofmeister, the former president of Shell Oil, believes that American consumers will likely be paying 5 dollars for a gallon of gas by the time 2012 rolls around.

So is your employer going to be paying you much more to keep up with rising gas prices?

Of course not.

And you know what?

When the price of oil rises, it affects the price of almost everything else in the stores, because nearly everything has to be transported in one way or another.

So why is the price of oil going up so much?  Well, of course there are speculators and of course the price of oil is highly manipulated, but one of the big reasons why oil is going up is because the U.S. dollar is losing value.

The cost of other basics is going up as well.  Have your health insurance premiums gone up lately?  All over the country, horrific health insurance premium increases are being reported.

Quite a few of the readers of this column have stated that they simply cannot afford health insurance anymore and so they are now doing without it.  There are millions of Americans that refuse to go to a hospital because there is no way they can pay for health insurance and there is no way they can pay the ridiculous fees charged by our hospitals today.

Sadly, in the months and years to come millions more working American families will be pushed into poverty-like conditions by rising inflation.

Already we are seeing huge numbers of American families that are working as hard as they can not being able to afford the basics.

A year-end survey conducted by Pew Research found the following….

*51% of Americans say that it is difficult to afford health care.

*48% of Americans say that it is difficult to pay their home heating and electric bills.

*29% of Americans say that it is difficult to afford food.

Those numbers should be quite sobering for us all – especially considering the fact that jobs are becoming very difficult to get.

According to the same Pew Research study, a staggering 46 percent of all Americans say that someone in their household has been without a job and looking for work at some point during the past year.

It can be really depressing to search for a decent job month after month after month when there doesn’t seem to be any out there.

The truth is that there are 7 million less middle class jobs in America today than there were just a decade ago.

So if even one person if your family has a decent job you should consider yourself to be very fortunate.

But sadly even families where everyone is working are going to continue to be stretched further and further financially as rapidly increasing inflation steals our purchasing power a little bit more every single day.

The “good times” are rapidly coming to an end.  The greatest debt-fueled party in the history of the world is wrapping up and you should enjoy it while you still can, because the years ahead are just going to be brutal.

5 Dangers To Global Crops That Could Dramatically Reduce The World Food Supply

The world food situation is starting to get very, very tight.  Unprecedented heat and wildfires this summer in Russia and horrific flooding in Pakistan and China have been some of the primary reasons for the rapidly rising food prices we are now seeing around the globe.  In places such as Australia and the African nation of Guinea-Bissau, the big problem for crops has been locusts.  In a world that already does not grow enough food for everyone (thanks to the greed of the elite), any disruption in food production can cause a major, major problem.  Tonight, thousands of people around the world will starve to death.  So what happens if things get even worse?  Many agricultural scientists are now warning that global food production is facing dangers that are absolutely unprecedented.  Crop diseases such as UG99 wheat rust and the “unintended effects” of genetic modification pose challenges that previous generations simply did not have to face.  The outbreak of a real, live global famine looks increasingly possible with each passing year.  So are you and your family prepared if a global famine does strike?

Already, there are huge warning signs on the horizon.  Just check out what agricultural commodities have been doing.  They have been absolutely soaring.      

A recent article on the Forbes website noted a few of the agricultural commodities that have skyrocketed during this year….

Here’s what’s happened to some key farm commodities so far in 2010…

•Corn: Up 63%
•Wheat: Up 84%
•Soybeans: Up 24%
•Sugar: Up 55%

Are you ready to pay 84 percent more for a loaf of bread?

You better get ready – these raw material prices will filter down to U.S. consumers eventually.

So what is going to happen if the world food situation gets even tighter?

Don’t think that it can’t happen.

The following are 5 potential dangers to global crops that could dramatically reduce the world food supply…. 

UG99 Wheat Rust

UG99 is commonly known as “wheat rust” or “stem rust” because it produces reddish-brown flakes on wheat stalks.  The International Maize and Wheat Improvement Center in Mexico believes that approximately 19 percent of the global wheat crop is in imminent danger of being infected with UG99.

Ultimately, it is estimated that about 80 percent of the wheat on the globe is capable of catching the disease.

There is no known cure.

This current strain of wheat rust was discovered in Uganda in 1999 and has spread into areas of Kenya, Sudan, Ethiopia, Yemen and Iran.  It is feared that this crippling disease will spread even farther into south Asia, devastating the fertile growing regions of Afghanistan, Pakistan, India and Bangladesh.

If that happens, you might as well kiss world food stability goodbye.

A recent article in the Financial Times contained an absolutely stunning quote from one prominent agricultural scientist….

“You can talk about crying wolf,” says Ronnie Coffman, director of the Durable Rust Resistance in Wheat project at the University of Cornell in the US, “but it is a wolf”, he asserts, driving across the corn fields of Kansas.

Later on in the same article, Coffman warns that this disease could cause a devastating famine in which literally millions of people would die….

“It can be absolutely devastating if environmental conditions are right,“ he says. “You can count the number of people who could die from this in the millions.”

Mad Soy Disease

Mad Soy disease is spreading at an alarming rate among soy farms down in Brazil.  Previously the disease had been confined to the north part of the country, but now it has been increasingly spreading south.  This disease retards the maturation of infected plants, and it has been causing yield losses of up to 40 percent.  The USDA says that “there are no known effective treatments.”

Verticillium Wilt

Verticillium Wilt is a fungus that prevents lettuce from absorbing water, causing it to quickly grow yellow and eventually wilt.  This dangerous fungus is very hard to get rid of totally because it can stay in the soil for up to seven years.

Today, Verticillium Wilt is spreading all over Monterey County, California.  Considering the fact that Monterey County produces more than 60 percent of the lettuce in the United States, that is very bad news.

Late Blight

In 2009, a disease known as “late blight” attacked potato and tomato plants in the United States with a ferocity never seen before.  According to a press release from Cornell University, late blight had “never occurred this early and this widespread in the U.S.” when it started showing up all over the place early last year.

Late blight begins as ugly brown spots on the stems of potato and tomato plants, and as the spots increase in size, white fungal growth develops until finally a soft rot completely collapses the stem.

This was the disease that was responsible for the Irish potato famine in the 1850s.  A major new outbreak could occur without warning.

Genetic Modification

While it may or may not technically be a disease (depending on how you look at it), genetic modification is having a very serious affect on crops around the globe.

For example, about 10 years ago Chinese farmers began to widely adopt Monsanto’s genetically modified Bt cotton.  Well, researchers have found that since that time, mirid bugs that are resistant to the Bt pesticide have experienced a complete and total population boom.

Today, six provinces in Northern China are experiencing what can only be described as a “mirid bug plague”.  Mirid bugs eat more than 200 different kinds of fruit, vegetables and grains.  Chinese farmers in the region are completely frustrated.

In the United States, a different problem is developing.  The complete and total reliance of so many U.S. farmers on Monsanto’s Roundup herbicide has resulted in several varieties of glyphosate-resistant “superweeds” developing in many areas of the United States. 

The most feared of these “superweeds”, Pigweed, can grow to be seven feet tall and it can literally wreck a combine.  Pigweed has been known to produce up to 10,000 seeds at a time, it is resistant to drought, and it has very diverse genetics.

Superweeds were first spotted in Georgia in 2004, and since then they have spread to South Carolina, North Carolina, Arkansas, Tennessee, Kentucky and Missouri. 

In some areas, superweeds have become so bad that literally tens of thousands of acres of U.S. farmland have actually been abandoned.

But that is what we get for trying to “play God”.

We think that we can just do whatever we want with nature and there will not be any consequences.

One of the most frightening things about genetic modification is that it actually reduces that amount of crop diversity in the world.

For example, if nearly all farmers start using the same “brand” of genetically modified plants that are all virtually identical, it sets up a situation where crop diseases and crop failures can cascade across the planet very easily.

Genetic variety is a very desirable thing, but today our scientists are just doing pretty much whatever they want without really considering the consequences. 

It has been said many times that genetic engineering is similar to “performing heart surgery with a shovel”.

The truth is that we just do not know enough about how our ecosystems work to be messing around with them so dramatically.

Perhaps even more frightening is that once these genetically engineered monstrosities have been released into our environment, it is absolutely impossible to recall them.  They essentially become a permanent part of our ecosystem.

But can we afford to make any serious mistakes at this point?

The truth is that we already live in a world that is not able to feed itself.

Tonight, approximately 1 billion people across the globe will go to bed hungry.  Every 3.6 seconds someone in the world starves to death, and three-fourths of those who starve to death are children under the age of five.

It is currently being projected that global demand for food will more than double over the next 50 years.

So what is going to happen if we start seeing widespread crop failures in the coming years?

The global food supply is not nearly as stable as most people believe.  At some point, it is going to be tested severely.

100 Dollar Oil Is Coming

The price of oil has been hovering around 80 dollars a barrel for quite some time now, but get ready, because it is going to move significantly higher.  Oil prices have already risen about 9 percent over the past month, and many believe that this could very well be the start of a new trend.  Lawrence Eagles, a top analyst at JP Morgan, recently made headlines across the globe when he stated that oil could hit 100 dollars a barrel “much sooner than we expect”.  Not only that, but a number of top OPEC officials are also publicly discussing the possibility of 100 dollar oil.  But just because a few people are talking about it does not mean that it is going to happen.  So are there any other reasons why we should anticipate a significant increase in the price of oil?

Well, yes there is.

*The Decline Of The U.S. Dollar

Since August 27th, the U.S. dollar has declined approximately 4.8% against the currencies of major U.S. trading partners.  Unfortunately, there seems to be every indication that the dollar is going to continue to decline.  As the U.S. dollar continues to display weakness, just about everything priced in dollars (including oil) is going to continue to rise.

*The Threat Of Quantitative Easing By The Federal Reserve

For weeks, top Federal Reserve officials have been making public statements about the need for more quantitative easing.  If the Fed does initiate a significant program of quantitative easing in the coming months, that is going to put even more downward pressure on the U.S. dollar and even more upward pressure on the price of oil. 

*Other Commodities Have Been Skyrocketing

Over recent weeks, the prices of a wide array of key commodities have been absolutely skyrocketing.  As I noted in a previous article, not only has the price of gold been setting records, the truth is that almost every major commodity has been spiking.  In a recent column entitled “An Inflationary Cocktail In The Making“, Richard Benson noted some of the commodity price increases that he has been tracking this year….

-Agricultural Raw Materials: 24%

-Industrial Inputs Index: 25%

-Metals Price Index: 26%

-Coffee: 45%

-Barley: 32%

-Oranges: 35%

-Beef: 23%

-Pork: 68%

-Salmon: 30%

-Sugar: 24%

-Wool: 20%

-Cotton: 40%

-Palm Oil: 26%

-Hides: 25%

-Rubber: 62%

-Iron Ore: 103%

The increase in the price of oil is just part of a larger trend of soaring commodity prices.  As long as this trend in commodity prices continues it is unlikely that the price of oil will go down.

*The Strikes In France

The austerity strikes in France have interrupted the flow of gasoline in that country.  Once the strikes are over there will be an increase in demand as inventories are restocked.

*Increased Demand From China And Other Emerging Nations

Most analysts are forecasting that the demand for oil in China and other emerging nations will continue to grow at an impressive pace.  This growing demand will also cause upward pressure on the price of oil.

*The Potential Of War In The Middle East

As always, war could break out in the Middle East at any time.  A minor conflict in the Middle East would likely push the price of oil over 100 dollars a barrel very quickly.  A major conflict would likely push it over 200 dollars or even beyond.  War is very, very difficult to predict, but it does seem quite likely that some kind of conflict will break out in the Middle East at some point over the next several years.

So how soon will oil reach the 100 dollar mark?

That is very hard to say. 

But even now, Americans are already having to dig deeper into their wallets at the gas pump.

For the two week period ending October 22nd, the average price of gasoline in the United States increased 5.23 cents to $2.82 a gallon.

As the price of oil continues to rise significantly over the long-term, it is going to have an impact on thousands of other prices.  Virtually all products must be transported, and an increase in the price of oil will cause those transportation costs to go up.

So an increase in the price of oil would be really bad news. 

If we do see 100 dollar oil, that will be a huge challenge for the U.S. economy.

If we end up seeing 150 dollar oil (especially for an extended period of time) it will be an absolute nightmare for the U.S. economy.

So where do you think the price of oil is going?  Feel free to leave a comment with your opinion….

12 Ominous Signs For World Financial Markets

Can anyone explain the very strange behavior that we are seeing in world financial markets right now?  Corporate insiders are bailing out of the U.S. stock market at a very alarming rate.  Investors are moving mountains of money into gold and other commodities.  In fact, there is such a rush towards gold that shortages are starting to be reported in some areas.  Meanwhile, some very, very unusual option activity has started to show up.  In particular, someone is making some incredibly large bets that the S&P 500 is going to absolutely tank during the month of October.  Central banks around the world have caught a case of “loose money fever” and are apparently hoping that a new flood of paper money will shock the global economy back to life.  Meanwhile, the furor over the foreclosure procedure abuses of the major U.S mortgage companies threatens to bring even more turmoil to the U.S. housing industry.

There are some very ominous signs that something is just not right in world financial markets right now.  Some of the signs listed below may be related.  Others may not be.  That is for you to decide.

Often, just before something really bad happens, you can actually see the rats leaving a sinking ship if you know where to look.  The truth is that if things are going to go south it is the insiders who know before anyone else.

So are some of the signs below actually clues for what we should expect in the months ahead?

Maybe.

Maybe not.

You make your own call.

But it is becoming hard to deny that there are some serious danger signs out there at this point….    

#1 Corporate insiders are getting out of the U.S. stock market at an absolutely blinding pace.  It is being reported that the ratio of corporate insider selling to corporate insider buying last week was 1,411 to 1, and this week the ratio has soared even higher and is at 2,341 to 1.

#2 Many of the world’s wealthiest people are buying absolutely massive quantities of gold right now.

#3 It is being reported that J.P. Morgan is gobbling up the rights to as much physical gold as it possibly can.

#4 The United States Mint has announced that it has run out of 1-ounce, 24-karat American Buffalo gold bullion coins and that it will not be selling any more of them in 2010.

#5 It is becoming increasingly difficult to explain the unusually high option volume that we are witnessing right now.

#6 Some very large investors are making massive bets that the S&P 500 is going to take a serious tumble during the month of October.

#7 On Tuesday, the Bank of Japan shocked world financial markets by cutting interest rates even closer to zero and by setting up a 5 trillion yen quantitative easing fund.

#8 The president of the Federal Reserve Bank of New York and the president of the Federal Reserve Bank of Chicago are both publicly urging the Fed to do much more to stimulate the U.S. economy, including beginning a new round of quantitative easing, even if it means a significant rise in the U.S. inflation rate.

#9 Nobel Prize-winning economist Joseph Stiglitz told reporters on Tuesday that the loose monetary policies of the Federal Reserve and the European Central Bank are throwing the world into “chaos”.

#10 At the end of September, federal regulators announced a $30 billion bailout of the U.S. wholesale credit union system.

#11 Bank of America, JPMorgan Chase and GMAC Mortgage have all suspended foreclosures in many U.S. states due to serious concerns about foreclosure procedures.  Now, Texas Attorney General Greg Abbott is actually demanding that all mortgage servicing companies in the state of Texas immediately suspend all foreclosures, the selling of foreclosed properties and the eviction of people living in foreclosed properties until they have completed a review of their foreclosure procedures.

#12 Not only that, but Nancy Pelosi and 30 other members of Congress are requesting a federal investigation of the foreclosure practices of U.S. mortgage lenders.  Needless to say, this controversy has the potential to turn the entire U.S. mortgage industry into an absolute quagmire.

So are dark days ahead for world financial markets?

Well, yeah, but it is incredibly hard to predict exactly when things are going to fall apart.

The truth is that there are going to be a whole lot more “crashes” and “collapses” in the years ahead.

The important thing, as discussed yesterday, is to keep your eye on the long-term trends.

The U.S. economy is undeniably in decline.  The only thing keeping the economy going at this point is a rapidly growing sea of red ink.  Debt is literally everywhere.  It is what our entire financial system is based on in 2010. 

In the months and years to come, the major players are going to try very hard to keep all the balls in the air and to continue the massive shell game that is going on, but in the end the whole thing is going to collapse like a house of cards.

Unfortunately, we have been destroying the U.S. economy for decades and there is simply not going to be a happy ending to this story.

Rampant Inflation In 2011? The Monetary Base Is Exploding, Commodity Prices Are Skyrocketing And The Fed Wants To Print Lots More Money

Are you ready for rampant inflation?  Well, unfortunately it looks like it might be headed our way.  The U.S. monetary base has absolutely exploded over the last couple of years, and all that money is starting to filter through into the hands of consumers.  Commodity prices are absolutely skyrocketing, and it is inevitable that those price increases will show up in our stores at some point soon.  The U.S. dollar has already been slipping substantially, and now there is every indication that the Fed is hungry to start printing even more money.  All of these things are going to cause a rise in inflation.  Not that we aren’t already seeing inflation in many sectors of the economy.  Airline fares for the holiday season are up 20 to 30 percent above last year’s rates.  Double-digit increases in health insurance premiums are being reported from coast to coast.  The price of food has been quietly sneaking up even at places like Wal-Mart.   Meanwhile the U.S. government insists that the rate of inflation is close to zero.  Anyone who actually believes the government inflation numbers is living in a fantasy world.  The U.S. government has been openly manipulating official inflation numbers for several decades now.  But we really haven’t seen anything yet.  As increasingly larger amounts of paper money are dumped into the economy, we are eventually going to see the worst inflation in American history.  The only real question is how far down the road are we going to get before it happens.  

Take a few moments and digest the chart below.  It shows just how dramatically the U.S. monetary base has been expanded recently….

Photobucket 

Up to this point this dramatic expansion of the U.S. monetary base has not caused that much inflation because U.S. government borrowing has soaked most of it up and U.S. banks have been hoarding cash and have been building up their reserves.

However, this situation will not last forever.  Eventually all this cash will make its way through the food chain and into the hands of U.S. consumers. 

But what is even more troubling is the dramatic spike in commodity prices that we have seen in 2010. 

Wheat futures have surged 63 percent since the month of June.  Wheat has recently been selling well above 7 dollars a bushel on the Chicago Board of Trade.

But wheat is far from alone.  In his recent column entitled “An Inflationary Cocktail In The Making“, Richard Benson listed many of the other commodities that have seen extraordinary price increases over the past year….

*Agricultural Raw Materials: 24%

*Industrial Inputs Index: 25%

*Metals Price Index: 26%

*Coffee: 45%

*Barley: 32%

*Oranges: 35%

*Beef: 23%

*Pork: 68%

*Salmon: 30%

*Sugar: 24%

*Wool: 20%

*Cotton: 40%

*Palm Oil: 26%

*Hides: 25%

*Rubber: 62%

*Iron Ore: 103%

Now, as those price increases enter the chain of production do you think that there is any chance that they will not cause inflation?

Do you think there is any chance at all that producers and retailers will not pass those costs on to consumers?

It is time to face facts.

Those cost increases are going to filter all the way through the system and your paycheck is soon not going to stretch nearly as far.

Inflation is coming.

Many savvy investors understand what is going on right now.  That is one reason why gold and silver are absolutely soaring at the moment.

The price of gold set another record high on Friday for the sixth straight day.   

Silver has also experienced extraordinary gains recently, and the U.S. Mint has officially raised their wholesale pricing above spot on American Silver Eagles from $1.50 to $2.00.

Meanwhile, there are even more rumblings that the Fed wants to print lots more money.  On Friday, the president of the Federal Reserve Bank of New York, William Dudley, stated that the high unemployment and the low inflation that the United States is experiencing right now are “wholly unacceptable”….

“Further action is likely to be warranted unless the economic outlook evolves in such a way that makes me more confident that we will see better outcomes for both employment and inflation before long.”

During his remarks, Dudley even mentioned what the effect of another $500 billion increase in the Fed’s balance sheet would be.

Now keep in mind, this is not just another “Joe” who is making these remarks.

This is the president of the Federal Reserve Bank of New York – the most important of all the regional Fed banks.

In recent weeks it is almost as if you can hear Fed officials salivate as they consider the prospect of flooding the economy with even more money. 

Up to this point, very little has worked to stimulate the dying U.S. economy.  The Federal Reserve and the Obama administration are getting nervous as the American people become increasingly frustrated about the economic situation.

So will flooding the economy with even more money and causing even more inflation do the trick?

Well, no, but what inflated GDP figures will do is enable Obama and the Fed to say: “Look the economy is growing again!”

But if a flood of paper money causes the value of goods and services produced in the U.S. to go up by 5 percent but the real inflation rate is 10 percent, are we better off or are we worse off?

It doesn’t take a genius to figure that one out.

So don’t get fooled by “economic growth” numbers.  Just because more money is changing hands doesn’t mean that the U.S. economy is doing better. 

In fact, many American families are going to be financially shredded by the coming inflation tsunami. 

Just think about it.

How far will your paycheck go when a half gallon of milk is 10 dollars and a loaf of bread is 5 dollars?

Already, it is incredibly difficult for the average American family of four to get by on $50,000 a year.

So how much money will we need when rampant inflation starts kicking in?

And do you think that your employers will actually give you pay raises to keep up with all of this inflation?

Not in these economic conditions.

In fact, median household incomes are declining from coast to coast all over the United States.

Earlier this year, Ben Bernanke promised Congress that the Federal Reserve would not “print money” to help the U.S. Congress finance the exploding U.S. national debt.

Did any of you believe him at the time?

Did any of you actually believe that the Federal Reserve would act responsibly and would attempt to keep the money supply and inflation under control?

The reality is that the entire Federal Reserve system is predicated on perpetual inflation and a perpetually expanding national debt. 

Whatever wealth you and your family have been able to scrape together is going to continue to be whittled away month after month after month by the hidden tax of inflation.

And unfortunately, as discussed above, inflation is about to get a whole lot worse.

So is there any room for optimism?  Is there any hope that we will not see horrible inflation in the years ahead?  Please feel free to leave a comment with your opinion below….

Do NOT follow this link or you will be banned from the site!