Thursday, November 1, 2007

You Bet a Weak Dollar Drives Inflation

So here I am in this position as a global sourcing manager and I've got news for you, a weak dollar is going to kill the American economy. What you say? How could that be? Why the Fed swears up and down that it's doing this to save the US economy.

Well the problem is, the Fed has built a house of cards over the years, with a massive creation of M3 (cash) flooding the world, very low interest rates and no regulation of lending along with low amounts of reserve cash at banks...all to create a perfect storm. Of course, for those who create the money (the private banking system called the Federal Reserve) this is a windfall that's moving your wealth to their pockets...suckers.

Now, back to this driving inflation thing and the weak dollar. As most people learned in the one or two economic classes they might actually have taken, a weak currency allows a nation to export more, especially finished goods. Alas, that's under normal circumstances and there is absolutely nothing normal about the modern American shamonomy. With most of the US' manufacturing base overseas there is little to either 1. export or 2. export that does not require at least some of the components to be manufactured globally and brought back to America.

Again, back to the sliding dollar and my suppliers. Well now, I've just gotten done with several supplier conferences and guess what: I've got suppliers from India to Indonesia, from Italy to Canada asking for price increases from 7-15%. Yup, ghouls and goblins (it is Halloween) this is called inflation, inflation driven by global manufacturing and the falling dollar. And while we here in what's left of American industry might still be able to fight off these full increases it should never be mistaken for what it is: a rear guard action and that's absolutely what it is, a fighting retreat just made worse by Mr. Bernanke and the interest knife he wields. Never mind how he'll compete for investments for Uncle Spend Like a Drunken Sailor's budget deficits when competing with much higher European and Japanese rates.

So boys and girls, ghasts and ghosts, while the shock might not be hitting you yet, just give it another 3 or so months and you'll definitely have a yule tide log...that'll cost you 15% more.

1 comment:

DMB said...

Thanks for the insightful testimony. Here's hoping your readers are now learning the difference between 'real' and 'nominal' wealth - something they might have learned in one of those introduction to economics classes.