Inflation, Commodity Prices and the Dollar (September 29, 2009)
Inflation is not a given, and neither are stable commodity prices.
Correspondent Angry Saver noted that deflation /price stability has occurred on a regular basis. Indeed, according to The Great Wave: Price Revolutions and the Rhythm of History , prices in 19th century Great Britain hardly varied. A loaf of bread fetched the same price in 1803 and 1893.
Here is Angry Saver's commentary:
Inflation is immoral. The notion that deflation will bring eCONomic ruin is a ruse to justify theft. Economies can function fine with deflation, although with all our ponzi debt it would be very painful now. It's kleptocracies and ponzi finance that don't fare so well under deflation.
Since inflation, consumer and commodity prices all share the same space in the public awareness, let's turn to correspondent B.C. for some charts of the CPI (consumer price index) and commodities.
The CCI is the old index, whereas the Reuters/Jeffries CRB is the new index reweighted with energy in '05:
Here is a chart of the new CRB index 2001-2009. Is it just coincidence that this peaked along with the global housing bubble in 2006? The second spike in 2008 reflects the rise of oil to $149/barrel.
Next: here is B.C.'s annotated chart of the CPI from 1974-2009. This is a content-rich chart so click on the thumbnail to see the full chart in a new browser window.
And here is B.C.'s annotated chart of the CRB and the "old" CCI commodity indices from 1974-2009. Note the effects of the overweighting of energy. Click on the thumbnail to see the full chart in a new browser window.
In analyzing these charts we must remember that the commodities are priced in U.S. dollars. That of course is what makes understanding commodity price fluctuations akin to a 3D chess game: if the dollar snubs the 97% bearish pundits who are calling for its demise and rises significantly, then each dollar buys more commodities, even if that commodity is rising when priced in gold or another currency.
But if the dollar tanks as widely expected, then even commodities which were stable in value when priced in gold or other currencies would cost much more in dollars.
Speaking of the dollar: correspondent David B. sent in this intriguing chart of the U.S. dollar ETF, UUP with these comments:
Check that volume out on the weekly ... If I was looking for something conspicuous to mark a possible capitulation low on the dollar (like last year's low) it might be ramping volume.
Thank you, Angry Saver, B.C. and David B. for your commentaries and charts. All of which remind us that attempting to "price" commodities or understand consumer prices without accounting for the dollar is a doomed enterprise.
Put another way: the basis of stable consumer prices is a stable, sound currency.
Speaking of which: here's an idea whose time has come:
End the Fed
by Ron Paul. This book is currently #6 on amazon.com, so we can surmise that many other
citizens are concluding it is indeed time to end the experiment of State manipulation of
money supply, liquidity and interest rates, all of which have led to endless
and endlessly destructive asset bubbles, inflation and financial fraud.
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He routinely discusses things which no one else has talked about, yet,
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