This headline is a PERFECT EXAMPLE of why the western world is so utterly confused about basic economic principles:

PARIS (Reuters) – Inflation, the curse of the 1970s, is staging a comeback, led by sky-high oil prices. This time, the menace is more genuinely global than three decades ago, and this time much of it is “Made in China”.

Lets dissect this headline for a moment.

First, this amazingly not so smart Reuters Analyst says that inflation is being led by oil prices. This is so mind bogglingly garbage spin that it baffles me every time one of these people says something like this. Its insulting. We are not that stupid, thank you.

Inflation is caused by one thing, and one thing only! Adding more currency to the money supply! This is not rocket science! Oil prices are a symptom of the cause, not the cause itself!

Next we have, “This time, the menace is more genuinely global than three decades ago, and this time much of it is “Made in China”. ”

So if the first red herring doesnt throw you, by calling it a menace and making it some spooky creature that might “flare up”, or “jump out of the closet”, or “ambush you from under your bed”, then maybe they can make the subject even more mysterious and confusing than they did before! And if that doesnt confuse you enough, lets throw Chinese manufacturing in there and blame it on them!

They think you will buy it, hook line in sinker, because they think you feel China stole all your jobs, so its an easy way to get you more irritated and off track!

The problem is one of fiat-currency, and pumping billions into the system, period. Inflation will continue not because of skyrocketing oil (that is so absurd it makes my head hurt), but because we keep creating more money out of thin air to salvage the current wreckage of the banking sector.

The Fed has two options:

1. Let these banks who are being forced to write off billions (soon to be hundreds of billions, just wait and see) in toxic debt exposure actually go insolvent

2. Continue to bail them out at light speed, because if one of them fails we will see cascading defaults in the multi-trillion dollar derivatives markets and the whole house of cards will come crashing down in a pile of credit default dust

The Fed cant allow them to fail, period.

So what will we have? A whole lot more inflation.

Get ready for $9 a gallon gas.

My solution? I buy gold and silver to protect my buying power.

Whats your solution?

Buy Gold and Silver Bullion

This entry was posted on Tuesday, June 24th, 2008 at 3:51 pm and is filed under Archived. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.