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Inflation Is Everywhere

By: Steve Johnson

5/20/2008 - 22 Comments

Inflation is increasing all around the globe, pushing many nations into a recession.

Here are some of the inflation rates: Venezuela (22pc), Vietnam (21pc), Latvia (18pc), Qatar (17pc), Pakistan (17pc), Egypt (16pc) Bulgaria (15pc), The Emirates (11pc), Estonia (11pc), Turkey (9.7), Indonesia (9pc) Saudi Arabia (9.6pc), Argentina (8.9pc), Romania (8.6pc), China (8.5pc), Philippines (8.3pc), and India (7.6pc).

50 years ago the dollar was so strong that many nations pegged their currency to the dollar. Most of the Gulf States are linked to the dollar, forcing them to shadow the US Federal Reserve's super-loose interest rate policy.

Reference Article: OECD warning as stagflation goes global

International Monetary Fund (IMF) warning

Last month the IMF said ‘global inflation cannot be ignored’.  ‘Policy-makers should act aggressively if things start to get out of hand’.  Skyrocketing energy and commodity prices have dangerous repercussions for the world economy, said John Lipsky, the fund's first deputy managing director, as oil prices hovered near a record above $123.

Reference Article: Global inflation cannot be ignored: IMF

What is the Cause of Inflation?

How could inflation have been so low for decades and now suddenly be increasing all over the world?  What is causing the rapid increase in inflation?

The real answer is the US Federal reserve monetary policy.  Chairman Ben Bernanke knows this, but believes that he is doing the best thing that he can to save the financial markets from a collapse - and put more people in financial hardship. This is also the reason that the rest of the world cannot do anything about it.  They are intrinsically tied to the dollar and the monetary policy of the Federal Reserve.  

I don't believe Bush understands the crisis that we are in, but he trusts Bernanke and Paulson as he trusted Allan Greenspan.  Bush trusts that they will get us through this turbulent financial time and lead us to higher ground. 

The world's financial leaders are at the mercy of the US Fed monetary policy, because we control the world reserve currency (the dollar).  All they can do is react to our policy changes.  But, because of this, they are not happy and several are threatening to abandon the dollar.  Even Brazil is now talking about abandoning the dollar.

Reference Article: Dollar losing clout around the world

Social Unrest

World Bank President Robert Zoellick warned earlier this month that soaring food and energy prices were a serious concern that threatened to foster social unrest in an estimated 33 countries.

Reference Article: Paulson: Food Price Controls Won't Work

Blame the Farmers

Actually, it’s better for us if the world blames the farmers for producing Ethanol and profiting from rising food prices, rather than realizing the real problem is our Federal government’s monetary policy.  Once the world realizes that the US is exporting global Inflation, causing many to starve to death, they will turn to another currency like the euro or Yen or a combination or perhaps create a new regional monetary union to stabilize the global money supply and stop inflation. If this happens, the dollar will sink like a rock. 

I think that by the end of the summer the pressure on Bernanke will be so great that he will be forces to start considering an increase in interest rates. 

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