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Gas Prices and Currency Issues

May 23, 2008

TNTalk recently covered the secret inflation rate of the United States economy in brief. Another major money machine, the Middle Eastern economy is just as important a force in the global economy as the Chinese. Look to the banking community bailout by the Saudis as proof of that. Yet, even the likes of Morgan Stanley admit that the “petrodollar economies of the middle east” have been in an overheating inflationary mode for some time.

Oil exports and price increases have been dramatic. This fact of life is not without reason. In the past, the Middle East has always managed to handle inflation capably. However, with the Muslim population joining the global banking community in new creative ways and the flush of cash and credit liquidity, the Middle East economies have been suffering from a nasty round of inflation as prices push ever upward. The overheating of Middle East property values, credit growth and speculative investments is not unlike the mortgage boom leading up to the sub-prime mortgage crisis. The crisis here has been feeding the world.

The liquidity boom in the Middle East has increased the money supply by 20% each year, focusing upward pressure on domestic prices. This situation has resulted in the blight of uncontrolled inflation. The fact that the Middle East receives so many dollars with the declining value of the dollar doesn’t help matters. Morgan Stanley admits that inflation measures are heavily stacked and don’t show the real truth of inflationary pressures. The Middle East is using many of the same accounting games that the United States does. Yet, despite the meticulous excuses, the inflation rate is showing up between 20% and 25%. This inflation rate is coincidentally similar to the U.S. inflation rate. This reality should not be surprising.

Higher commodity prices continue to bring windfall profits, but loose fiscal policies make for dangerous mix of economic and financial instability. This is the case for both economies and throughout the world. The reality is that much of the world, if not all of the world is in reality in a highly inflationary status. The mortgage debacle that was spread throughout the world economy and the grounding dollar has only served to spread the disease because its prevalence in the global economy. Now, some economies exhibit a dangerous, yet rarely admitted level of inflation.

The inflation is rarely admitted because standard practice is to cloak the real inflation rate in any way possible. Sooner or later, the ugly truth must come to bear. The inflated U.S. economy and devalued currency cannot be covered forever. At this time, economic stagnation threatens many economies and threatens to spread throughout the globe. In the U.S., the Bush administration and the Fed say that inflation is not a problem because it is much lower than crisis levels 30 years ago. The reality is that the books have been cooked and adjusted for years to show the desired net inflation, from the cessation of M3 to the small monthly percentages designed to hide the truth of yearly inflation rates. Unfortunately, the adjustments have been far more creative and plentiful than using masked figures. In essence, the United States is playing a game of pretence. The U.S. has an inflation rate of roughly 20% right now and is heavily depleted of financial resources from overspending, record trade imbalances along with decreasing wages and production. The Middle East has the opposite problem, but is exhibiting the signs of dollar hyperinflation. The Middle East is wise to the problem and has been less willing to comply with U.S. supply and financial requests. The Middle East can choose whether to accept the dollar for payment. The U.S. doesn’t have a choice.

The United States is very likely to face a currency value problem in the near future that could send the price of all commodities, as well as fuel, spiraling out of control. The United States is not prepared in any way for that reality as the economy continues to import at record levels while the economy slows down to stagnation levels. Masking the truth is the best that politicians can do.

— This is reprise of a very relevant article written recently this year. E.J. Manning is dealing with family business this week. —

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