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Thursday, March 31, 2011

Hey Ben; You're Inflation Blind fold Needs Another Layer (Michael Pento)

Thursday, March 31, 2011
By: Michael Pento

While the Fed continues its quest to save us from the horrors of deflation, the middle class is being swallowed by a tsunami of rising prices.

Wall Mart, the world’s largest retailer and second largest employer in the U.S., is warning that inflation is “going to be serious”. CEO Bill Simon told the editorial board of USA Today; "We’re seeing cost increases starting to come through at a pretty rapid rate." Wall Mart up until now has largely insulated American consumers from inflation by supplying them with low cost goods produced abroad. However, rising labor costs in China and soaring raw material costs are causing sharp price increases in imported goods.

Meanwhile, Hershey’s is raising wholesale prices on most of its candy by 10%. The company sites the reason being higher costs for raw materials, fuel, utilities and transportation. Sound familiar?

The Fed now is on record saying they aren’t comfortable with inflation being anything less than 2%. Now I’m not a mathematician, but I believe 10% is higher than 2%. Does 10% inflation make Ben happy? Is it enough inflation to calm his fears over deflation?

If you’re thinking 10% inflation courtesy of the Hershey Co. doesn’t represent the real rate of inflation, you would also have to believe it’s a pure coincidence that Shadow Stats calculates inflation at just about the same deadly rate.

The Keynesians are scratching their heads about now. They are saying, “How can this be”? “Inflation is impossible without rising wages and since there is a huge labor slack and capacity utilization is so low, we will just have to ignore the empirical evidence in front of our faces.” To that I’d say: Inflation comes from the central bank creating money to pay principal and interest on the national debt that the country was unable to provide via legitimate taxation. And, if inflation came from rising wages, real incomes would always increase and inflation would be a wonderful thing.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

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