The Inflation Recipe

They say the most dangerous enemy is the one you don't know, but as our legislators have proven to us in the last few months, the most dangerous is in fact the one you've created.

Year over year inflation, as reported by the New York times on Thursday, has skyrocketed at a rate not seen since 1991. Average consumer prices in July 2008 were 5.6% higher than the year before, with many major cities feeling the sting even more.

- Los Angeles: 5.7%
- Chicago: 5.8%
- Dallas: 6.2
- Boston: 6.3%

What caused this spike in prices? Oil, right?

Oil is a big part of it, but let's not lose sight of the events that have been going on in the last year, oil is just as much the product of inflation as it is the cause of it. It's easy for the government to point the finger at speculative trading, but what about pointing the finger at themselves? If you want to get a clearer picture of what's really been going on with this economy, combine heavy dependence on foreign oil with the plummeting buying power of the greenback, and you have a recipe for disaster. But just to make it a little spicier we've added 1 cup of ethanol rhetoric, 2 tablespoons of over-taxation, 1/4 stick of innovation and production crippling regulations and 1 1/2 gallons of drunken government spending. Stir and let sit.

And with the pot still brewing, Reuters reports that Gary Stern, president of the Federal Reserve Bank in Minneapolis, tried to abate fears of worsening inflation while telling business leaders in Three Forks, Montana that the economy will still have a few years to go before it returns to its previous growth rate. Stern pointed to the economic slowdown of the early 1990's as "a valuable guide" for what's to come and said that it may be between one to three years before the U.S. economy bounces back, though inflation should see a "diminution... absent a resurgence in energy and other commodity prices."

Granted what the Fed says should always be taken with a grain of salt, I say throw in a Margarita to go with it! I don't see the sky falling, and neither should you. Just bunker down for awhile, save your money, cut coupons and costs and carry on!

And if you think the actions that your elected officials are taking are only making things worse, then get involved and make your government work for you.

If you have more information, topic suggestions, or generally despise my work I'd love to hear from you! Write me at ncollard@tradingmarkets.com. I'm not afraid to face your compliments either.