If you were a foreign central bank, or a producer of a commodity such as oil, wouldn't you be skeptical of the future value of the dollar? Would you continue to hold dollars you collect from selling products, especially at the low interest rates being paid on the dollar? Or would you demand higher prices for your goods, and try to get rid of your dollars as quickly as possible?
That's why the world markets have determined that a barrel of oil should cost more than $60 or $70. In fact, to get the world's producers to part with one barrel, we now have to fork over nearly $140 U.S. paper dollars.
We've actually had a relative bargain in oil prices until recently. It wasn't until the average monthly price exceeded $106.43 per barrel that the inflation-adjusted price of oil in dollars exceeded the comparable average monthly price of $38 per barrel hit in 1979, according to
InflationData.com.
Now that the world is on to our game of "creating" more dollars to keep our economy going, combined with the demand for commodities brought on by growing economies in Asia, it's likely that dollar prices of these raw materials will move higher.
And it's less likely that they'll keep lending us back our money at low interest rates to finance our deficits.
Inflation and Politics
Politicians of both parties seem to be hoping that Americans won't catch on to this looming inflation disaster until after the November presidential election. After all, how could they continue to make their promises to "help" us if we knew the real cost?
Could they promise to give checks to worthy recipients from distressed homeowners to disaster-stricken regions? Could they promise loan forgiveness to graduates, or rebates to encourage savings? Could they promise tax-cuts to various constituents, or subsidies to deserving energy industries?
Could they continue to make all those promises about spending dollars they don't have, if we all understood the consequences and the reality that the government must either create ("print") that money, or borrow it?
The rest of the world is watching this shell game, determined not to be conned, even if American voters are blinded to the true costs of promises being made on both sides of the aisle.
The only question is whether American voters will wake up in time to demand real answers to our very real problems. Or whether we'll just continue to inflate them away. And that's The Savage Truth.
Terry Savage
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