I WARNED you about inflation

Since 2001, I’ve been warning about inflation, including on this blog the past year. Now, the inflation is becoming obvious.

U.S. consumer prices soared 1.1% in June, about 13% per year. Do you hear me now, America?

Here’s the process of inflation:

1. The Federal Reserve Board creates too much money, as it has since 2001. After 9/11, then-Fed Chairman Alan Greenspan panicked and flooded the market with new dollars, supposedly to prevent an economic collapse.

2. Gold rises in value to reflect the inflation. Gold has more than tripled in value against the dollar since 2001.

3. Other commodities are closely liked to gold, so they rise in value as well. That’s the main reason oil has risen in price. The secondary reason is Bush’s wars in the Middle East oil areas. Check out this analysis and chart.

4. It takes a while, but eventually everything else goes up in price. The diary farmer pays more for the energy used in his cow-milking machines and farm trucks. The wholesaler pays more for gas on his trucks to bring the milk to market. Your local grocery store passes on that cost, plus its own higher energy costs, to you, the consumer. Because it’s harder to feed your family, you demand a raise at work, and maybe get it. To pay for your raise, your company charges more for its products.

5.  Eventually, the inflation house of cards collapses because the prosperity all along was phony. It was created from the nothingness of funny money. Foreclosures rise, unemployment spikes, businesses fail.

6. If we had a gold standard, the price of the dollar would be fixed to that of gold — as it was before 1971. Then there would be only minor, temporary price fluctuations, as during wars and natural disasters. There would be no inflation and its disastrous consequences.

So, let’s not blame the Arabs, the Muslims, the Middle-Eastern countries, commodities speculators, the lack of oil drilling in America (a minor factor), the “lack” of regulation, capitalism — or anything but the inflation caused by creating too much money, and the Bush Wars that have used so much money and encouraged the Fed to goose the economy with inflation.

If gold stops going up in value, eventually the inflation will end. If gold’s price drops to, say, $400 an ounce, less than half its current price, then the inflation will be mostly reversed.

It’s that simple.