The biggest story they are not talking about, really at least

Posted by Ray on July 14, 2009 under Main | Be the First to Comment

The PPI came out much higher than expected and we went from a good position, deflation, to an inflationary situation. We knew this was going to happen, but us being right does not make us happy. Higher inflation is really bad for the US and it is clearly here.

They could not even hide the inflation from the “core rate” which excludes “volatile” food and energy. The core rate was way up at .5% which means the prices of everything will start to climb. I hate this top line and core rate on the CPI and PPI as it distorts the truth, IMHO. If you turn on a light and eat at least once a day you do use food and energy everyday, but it is unlikely you are buying a car or TV everyday. That is how they calculate the PPI and CPI, they assume you don’t eat or use energy which is absured, but they assume you buy consumer goods like TV’s everyday.

The whole deflationary “problem” isn’t really a problem if is a way for the market to sort out what is being used and what is not being used and prices rise or fall accordingly. However, deflation has been positioned as a bad thing, but it is not and why would you be against lower prices? A great example of deflation is the 1800′s to 1913 when we had ramped deflation over almost a century, but we also had growth that was unprecedented.

Another example is smart phone, like a blackberry, prices have fallen dramatically over the last 8 years. According to the Fed this is deflation and no one wants these products. Oh really? Isn’t the smart phone the most popular product in that sector? Demand has never been higher, but innovation drove prices down. I am not saying all deflation is good, but it is a hell of a lot better than most people think.

As far as inflation, I think this is just the beginning and it will get much worse. We have so much money in the system and the dollars value is continuing to decline which will ultimately lead to much higher inflation. Other countries want the reserve currency to change and they will get their wish. I do not know when, but it will happen.