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Inflation: The New Wave- by Greg Strid

An inflationary wave is building around the globe and
it threatens living standards and political stability. Prices
for food, energy and industrial commodities have been
rising steadily for the past few years. (The soaring cost
of food has sparked riots in Bangladesh and China this
year.) There are two main components that are giving
life and breath to the steady rise in global inflation. The
first is the erosion of the U.S. dollar, and the second is
the strong economic growth of developing economies.

Although the once mighty dollar has witnessed a period
of relative stability as of late, it’s overall direction is most
definitely lower. As the Federal Reserve and the U.S.
government scramble to resuscitate terminally ill U.S.
financial institutions and a weak economy, the Fed is
printing money- and the government is spending it- with
reckless abandon. Just as with commodities, the value of
a currency depreciates when its supply is drastically
increased. More money ends up chasing the same amount
of goods and services, causing prices to rise.

The nations that comprise the developing world- China
and India in particular- are becoming the new engines of
global economic growth. This boom in activity has increased
demand for all goods, thus fueling global inflation. Millions
of new consumers are being minted each year, mainly in
Asia. As the American religion of consumption spreads like
wildfire, it is sparking increased competition for raw
materials between nations. This causes both component and
wage costs to increase, thus fueling inflation. (Flat screen
TVs are made with industrial commodities by people who
eat expensive wheat.)

The U.S. economy will continue it’s struggle to move forward
as it is forced to drag the heavy baggage of a housing bust
and banking crisis. Therefore, monetary policy will continue to
expand in a vein attempt to lessen the load of that these
economic maladies are creating. As a result, the dollar will
inevitably continue its steady decline. The developing world’s
new consumer class is just starting to grow, and will continue
to put more pressure on the world’s finite supply of resources.
It appears that global inflation is here to stay.

© Greg Strid 2008

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