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Inflation: Why $5 Gas Could Be a Reality

Mar. 2, 2012 10:33pm

Matthew McCall is the Founder and President of the Penn Financial Group, and Editor of the ETF Bulletin. Matt is a Contributor on "Real News From The Blaze."

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matt@pennfinancialgroup.com

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On Wednesday’s “Real News from The Blaze” the panel and I got into a heated discussion about inflation after Ron Paul took a day off the campaign trail to go after Fed Chairman Ben Bernanke regarding the topic. Even though government numbers show the consumer price index (CPI) has only risen by 2.9% over the last 12 months, the real numbers paint a different and troubling picture.

Food and energy are two areas that all Americans are forced to spend money on almost every day.

Food and Gas:

During 2011 the price increase on specific food items well outpaced the 2.9% overall inflation the government is touting. The price of coffee rose 31%, a hamburger 23%, peanut butter 22%, flour 16%, bread 10%, and so on. According to the Food and Agriculture Organization of the United Nations (FAO), the Food Price Index is up over 100% in the last 8 years.

The gasoline picture is even more frightening as the cost at the pump has nearly doubled during the Obama administration. With gas prices at the highest level ever for this time of year, the prediction of a $5 per gallon national average is now a real threat.

Some may argue that the cost to fill up their tank each week is a small percentage of their overall budget. However, consider that nearly every good that we purchase is shipped in some manner from the manufacturer to the retailer. Gasoline is involved in powering the truck or ship that is transporting the goods. The manufacturer passes along these higher costs to the retailer, who in turn increases the price of the goods we are buying.

Who to Blame:

There were mentions during Wednesday’s segment alluding to the fact that President Obama could be to blame for the situation, as well as Bernanke. I know for a fact neither gentlemen would take the blame for inflation because, in their minds, inflation is non-existent at this time. If I was up for reelection, I assume I would not want my name associated with inflation and rising prices as unemployment remains high.

When it comes to rising energy prices, I place blame on the Obama administration for lacking an energy policy and the country’s reliance on foreign oil. The counterargument is that high gas prices are related to unrest in the Middle East. While this is in part correct, the moratorium Obama placed on offshore drilling in the Gulf of Mexico after the BP spill and the blocking of the Keystone XL pipeline are also factors in the higher energy prices.

Regarding Bernanke and the Fed:

The several rounds of quantitative easing (QE) and the massive influx of new money into the system is a perfect recipe for hyperinflation. Sure, the first round of QE was good for the economy and helped stave off a deeper recession. But now that the economy has begun to turn around it is time to increase interest rates from historic lows and stop the printing press from pushing the value of the U.S. dollar down any lower.

During the show I featured a chart of the M1 money supply hitting record levels. Historically, when the money supply increases, it will inevitably lead to an inflationary period. The country of Zimbabwe was mentioned as an extreme example of a country that flooded its money supply and suffered hyperinflation at its worst. I do not believe the U.S. is anywhere near that type of situation, however, history does not bode well for anyone who believes inflation will not be a major factor in the coming years.

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Comments (8)

Chi-Fawn
Posted on March 30, 2012 at 2:29pm
The upside of all this price-rising stuff is that more stores and other places will be forced to have discounts and muti-for-1 sales than ever before just so people will be able to buy things. Here in Chicago the highest priced gas is only a nickel under $5.00. The Regular and Premium kind aren’t far behind it with only 30 cents to go before it happens.

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garybkatz
Posted on March 14, 2012 at 12:47pm
You are leaving out the fact that American oil companies are currently exporting as much refined crude oil products (including gasoline) as they are selling here (source: Chicago Tribune). Think about what that means: 1. There is more gasoline produced in the U.S. than Americans can consume (this is known as oversupply); 2. By exporting the gasoline, American oil companies make a higher profit a.) in the foreign markets, and b.) domestically by driving up the prices we pay; 3. Even if we reduce our imports of oil, as long as American companies export such huge amounts of refined crude, Americans will pay higher prices, because inventories, while adequate, will be lower, thus influencing speculators to keep buying gasoline and crude futures. I’m breathlessly waiting for one politician to comment on these massive exports and how they might be curbed enough to moderate prices here. In the meantime, blame dependency on foreign oil all you want (it does feel good, I’ll admit), but just wait for the profit reports of American oil companies – more record quarterly profits are on the horizon (you and I should all get thank you notes, since we are the ones robbed at the pump every week).

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IM John Galt
Posted on March 14, 2012 at 10:37am
Printing money is never a solution to economic problems. It is just the transfer of purchasing power that causes markets to react negatively. How dare they intentionally destroy the value of my savings.
Of course the FED is the reason for gas prices. They not only cause the entire supply chain to react now but investors and speculators can see the future inflation handwriting on the wall. I see bubbles popping all over the place while the FED is intentionally inflating new ones. Great plan NOT.

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sbenard
Posted on March 8, 2012 at 9:54pm
Matt, I watched the show live and wanted to slap Will Cain because he kept interrupting and implied that you couldn’t “prove” your case. I even attempted to contact you via your corporate website to give you kudos for making the points that I would have! Will Cain has a big head that amounts to hubris. For him to think that he knows more than you, someone who works in the financial markets every day, is egotistical. I work in the financial markets also as a futures trader, so I knew that you were far more informed that Will Cain ever will be.
Crude had dropped to $104.50/barrel Wed morning, when Bernanke’s “voice” Jon Hilsenrath at the WSJ revealed that Bubbles Bernanke was going to initiate QE3.0. Over the next hour, the price of crude oil climbed to $1.06.20, and it hit $107 today. All of this was the aftermath of Bernanke’s monetary mayhem! YOU were right to place at least partial blame at Bernanke’s door. And to think that just last week he told Congress he had NO plans to more QE!
Will was making the case for DEflation based upon real estate — debt-purchased (inflated) assets. Mr. Cain doesn’t know enough of economics to realize that debt deflation can occur simultaneously with INflation of other financial assets. Ignorant Cain!
Keep participating on Real News, Matt. YOU have credibility. Cain doesn’t!

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Mr. H.
Posted on March 7, 2012 at 11:27pm
$5/gallon gas will be nothing if the islamofacists governing Iran plug up the Straight of Hormuz and/or the Suez Canal. Iran has material for 5 Atom Bombs. They are working on building a bomb. If Iran succeeds at building those bombs, and closes off the oil supply from the Muslim countries we will have to survive on our own production of oil. Our current oil production cannot supply enough fuel to just feed us, let alone produce electricity, heat our homes, or even ration out enough gas for us to drive to work.

Not being oil independent is a very major national security risk . If we cannot feed our selves we certainly cannot deploy our military, or even protect our borders, or have our local public safety officials perform their needed duties.

It’s long time past time to turn on our oil supply. And right NOW!

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TemayElbor
Posted on March 7, 2012 at 10:41pm
CHEVRON price of Regular Unleaded in my area is already $4.37 today (March 7, 2012.)

CHEVRON price of Premium Gas is $ 4.57 today (March 7, 2012).

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Soul Leister
Posted on March 6, 2012 at 7:16pm
Economics 101: the rule of 7 years (I am of course rounding)… modest inflation causes the cost of (price) goods to double every 7 years (give or take).

When I rode a mini bike as a kid (circa 1970) a gal of gas cost 32 cents; when i worked at a gas station (after high school 1977) a gal of gas cost 64 cents; by 1984 (while in the Marine Corps) a gal of gas around Jacksonville NC went for $1.20; during the furst Gulf War (1991) when all the oil wells were burning a gal was going for $2.00 (more depending on where you lived); by 1998 the economy was still booming and gas was cheap a gal going for less than a dollar; by 2005 the middle east is unstable again and gas was on the rise and well over $2.00 someplaces $3.00; and here we are 2012 and its already over $4.00 headed for $5.00+… SEVEN years from now it will likely be between $8-$10 a gal… and 2026 it will be $16-$20… all because of moderate inflation.

I guess the minimum wage will have to be the cost of a gal of gas (like it has been tracking for many decades now.

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ElPolacko
Posted on March 3, 2012 at 4:21pm
Everyone is acting like $5.00 per gallon is a surprise. This is the first phase of a hyper-inflationary spiral. It’s not that the gas costs more …it’s that the money is worth so much less. Gas prices are not coming down, gas prices are correcting for inflation. You can lay this disaster directly on Pres. Obama and the former Democrat majority.You can’t add $4.6 Trillion in fiat money in 3 years and not see prices go up. They should measure “inflation of the money supply” by the price of gold and gasoline. Instead they measure inflation like they do unemployment….incorrectly.
Get used to paying more for everything and this is only the beginning

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