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.