Inflation and pink elephants

Since around 2002 I’ve been warning about inflation, first when I was at the Orange County Register, then on this blog. Inflation usually begins as a cheap way for the government to pay for a long war, as this history of inflation notes. The Iraq War now is more than five years old, with no end in sight. It’s the second-longest war in American history, after the Vietnam War — itself paid for by the late 1960s-1970s inflation.

Look at the graph in the upper right. It shows how the inflation of the 1970s was sparked by a sharp rise in the price of gold. And how gold has more than tripled against the dollar since 9/11. That now is translating  into inflation across the board. Now we’re getting it — good and hard.

Isn’t that obvious? When you supply too much of something, its value goes down. With inflation, too much money is created — is put in circulation — so the value goes down against gold.

Why can’t Bush and the Federal Reserve Board see that and stop printing so much money, thus cutting the price of gold to around $350, where it was for most of the previous 2 decades?

The inflation sequence…

First commodities go up: hence the oil and gas price hikes.

Then manufactured goods go up.

Next, services and retail goods go up.

Depending on interest rates and other factors, sometimes a real-estate boom ensues, then goes bust. We’re going through that with the boom/bust in housing values and ensuing spike in foreclosures.

Finally — and last — wages. That’s why consumers get slammed, hard. AP is reporting:

Most inflation this year has come from food and fuel, as retailers resisted passing along to strapped consumers the higher prices manufacturers charged them, but coming increases from companies such as Johnson & Johnson and Hasbro Inc. may leave them with no choice.

“While these increases have not for the most part been passed on at the retail level, it is inevitable that they will be at some point,” said Dean Baker, co-director of the Center for Economic and Policy Research. “Car dealers and other retailers cannot continue to absorb rising costs at the wholesale level and not pass some of these increases on to consumers.”

Sherwin Williams Co. on July 17 announced its third price increase in eight months. The company has been having “difficult discussions” with retailers, Chris Connor, chairman and CEO, said on its quarterly conference call….

The increases keep coming.

Dow Chemical Co., the second largest chemical company in the world after Germany’s BASF, is raising some prices by as much as 25 percent this month, following June price increases that were as high as 20 percent on all products. The increase is sure to put more pressure on manufacturers, since Dow’s chemicals are used in everything from packing peanuts to frozen-food trays to diapers.

Some of us remember the 1970s

It was all so predictable, especially if you lived through the 1970s inflation, with most of our lawmakers and policy makers did, including Fed inflationist bosses Greenspan and Bernanke.

Maybe the explanation is that President Bush spent the 1970s getting drunk, so he doesn’t remember anything from that decade except pink elephants…