Inflation for certain … hyperinflation?

In the past, before the Clinton years, we had an inflation valuation that included such things as food and fuel.

Not so now, the Consumer Price Index has been so manipulated and had core items like food and fuel taken out of it that it has become a useless measure.

Unless you are living in a cave or under a rock or do not have any need for gasoline you will have noticed an ongoing upward trend in gasoline prices.  Nothing so amply shows this than the graph here.

The trend line is unmistakeable, keep in mind this is a GROWTH, year over year.  Since this time last year there has NEVER been a time without a price INCREASE.  Moreover since the start of the year the rate of INCREASE has been INCREASING.

Even the core CPI is calling for an inflation rate of a modest 1.33%, however when taken for the whole year, this increase will exceed the target 2%.  When food and fuel are counted, the rate is more like 3.2% and has a year end projected figure close to 6%.  This means a definite inflation trend.

Hyperinflation becomes visible when there is an unchecked increase in the money supply (see hyperinflation in Zimbabwe) usually accompanied by a widespread unwillingness on the part of the local population to hold the hyperinflationary money for more than the time needed to trade it for something non-monetary to avoid further loss of real value. Hyperinflation is often associated with wars (or their aftermath), currency meltdowns, political or social upheavals, or aggressive bidding on currency exchanges.

Lets quickly examine the associations:

  • Wars – yes at least two that the US is actively engaged in: Iraq & Afghanistan
  • Currency Meltdowns: the world is still struggling with the meltdown of 2008
  • Political or Social upheavals: the Arab spring certainly fits that notion, moreover there have been signs of ongoing division withing the US electorate since the Supreme Court decided who was to be President in 2000.
  • Aggressive Bidding on Currency Exchanges: less clear here, as the T-Bills of the FED are basically being purchased by the FED or proxy of the FED by banks associated to the FED

So most of the trend points needed to have hyperinflation exist, what remains to be seen is if the powers that be in Washington can overcome the force of history and the K-wave Winter that is overdue.

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