Inflation is the rise in prices for goods and services, measured in percentage terms. As inflation goes up, every dollar buys fewer goods and services. Rapid inflation is the acceleration of prices to the point where it’s moving so fast that the people can’t adjust quick enough to the rise in goods and services. Hyperinflation is an extreme version of rapid inflation, where the nation’s monetary system is essentially failing and people lose complete faith in their country’s currency. An example of hyperinflation is Germany in 1923, where, in just a few months, prices rose 2,500%.
There are some in the financial media who have lauded the fact that Ben Bernanke’s view on inflation has been validated. In his testimonies, Ben Bernanke has repeated more than once that inflation would be “transitory” and thus temporary.
Commodity prices have fallen dramatically over the last few months, with consumers thrilled about the fact that oil prices have come down at the pumps.
This provides the perfect backdrop for Ben Bernanke to print money, because rapid inflation is falling by any measure.
What the financial media is not conceding is that it was Ben Bernanke who precipitated the commodity inflation we’ve experienced in the last few years.
There is too much debt in the world, which means that after the financial crisis hit, the world was naturally set to embark on a painful deflationary recession or a severe deflationary depression. Debt was being repudiated or paid down and brought to a level that is more manageable, so that growth could ensue. However, the economic pain the world was going to experience was going to be so brutal, contracting so viciously, until such time as debt returned to more manageable levels.
Instead of allowing the market forces to clear out the system, which had accumulated too much debt, Ben Bernanke instead printed money and attempted to reflate the economy. One of the consequences of this action was the rapid inflation of commodity prices.
As the U.S. dollar is the reserve currency of the world, commodities worldwide are priced in U.S. dollars. As Ben Bernanke prints money, he reduces the value of the U.S. dollar and conversely increases the price of … Read More
It is fascinating to watch how market pundits will warn everyone that rapid inflation is upon us when interest rates and commodities are rising quickly. Also, most investors are quick to notice when interest rates are rising as well.
Interest rates have now fallen to all-time lows. The U.S. 10-year Treasury note has crossed below its all-time low of 1.8% to where round three of quantitative easing (QE3) will be enacted, in my opinion.
Market pundits are quick to point out that the turmoil in Europe is causing investors to pour into U.S. Treasuries to protect themselves. This is true, but I believe the market is telling us more, if we pay close attention, which is why QE3 is coming.
The Reuters/Jefferies commodities index, which measures a broad basket of industrial commodities, is testing its 2010 low—going back two years. Instead of talking about rapid inflation when the index was threatening to reach multi-year highs last year, this index is signaling deflation, as it is breaking down, laying the groundwork for QE3.
Agricultural commodities are also breaking down significantly—further evidence of QE3. Ben Bernanke began his QE programs because he said himself that he will not allow the U.S. economy to experience the deflationary malaise of the 1930s—the Great Depression. Now that the market is signaling deflation, my contention is that QE3 is very, very close.
If we look at the best performing sectors of the stock market over the last month, they are utilities, consumer staples, and healthcare: defensive sectors. When the market becomes defensive and feels that the economy is slowing, it sells the offensive sectors—technology, consumer discretionary, … Read More