Just as we can't eat iPods, we can't subsist on official reassurances that the Fed and inflation are both benign.







There is a great divergence between the conventional financial media and the public who goes to the supermarket: the financial media swallows whole the official artifice that inflation is near-zero while J.Q. Public sees his/her grocery costs, health insurance, etc. rising by leaps and bounds.





Many observers finger the Federal Reserve as the villain in the inflation story: it's all well and good to conjure up a few trillion dollars to pass out to your banker buddies, but there are always costs, recognized or not, to every action, and the Fed's credit creation and numerous quantitative easing operations have greatly expanded money supply.





All else being equal, a massive expansion of money typically causes inflation, as the flood of new money starts chasing goods and services that haven't expanded at the same high rate as money supply.





One camp reckons the reason why inflation is muted is that the Fed largesse has flowed into asset bubbles rather than goods and services, and proponents of this view make a good point: since little of the Fed largesse has trickled down to the to bottom 99.5%, it can't exerting much pressure on consumer prices. In effect, the price pressure is all in equities and rentier assets such as real estate rather than in goods and services.





But demand from consumers flush with cash is only one facet of inflation, as this chart of oil and Fed operations from Fine Charts (courtesy of Petr Fiala) reveals. Recall the charts I posted a few days ago showed a tight correlation between the price of oil and food: Recall the charts I posted a few days ago showed a tight correlation between the price of oil and food: Why Are Food Prices so High? Because We're Eating Oil





In other words, if the price of oil goes up, so does the price of food, and everything else that must be transported or that consumes oil in its manufacture.





Now examine this chart of Fed operations and the price of oil: when the Fed is actively expanding credit/money, oil goes up in price.









If little of the Fed's largesse is ending up in consumer's wallets, why should oil go up as the Fed shovels money into financiers' accounts? The answer is somewhat speculative, but there are two avenues of price pressure other than consumer demand:





1. Financial speculation in oil futures contracts, which fuels non-consumer demand





2. Fed credit/money creation weakens the U.S. dollar (USD), pushing the cost of oil priced in USD higher.





This is how the Fed fuels inflation, even when little of its largesse ends up in consumers' wallets. Recall that the price of tradable commodities such as grains and oil are set on the global marketplace. That means that grain harvested in the U.S. and oil extracted in the U.S. is not priced solely by domestic demand: as the Fed has weakened our currency with its various manipulations to favor financiers and bankers, oil and everything that uses oil rises in price in the U.S.





Sellers of grain and oil have a fiduciary obligation to get the best price they can, and in a Fed-engineered weak-dollar environment, the best price is not in domestic markets but in overseas markets.





This chart shows the Fed is indeed fueling inflation by driving oil higher. Official denials are to be expected, as are ginned-up inflation statistics; but just as we can't eat iPods, we also can't subsist on official reassurances that the Fed and inflation are both benign.







Want to give an enduringly practical graduation gift? Then give my new book Get a Job, Build a Real Career and Defy a Bewildering Economy, a mere $9.95 for the Kindle ebook edition and $17.76 for the print edition.











Get a Job, Build a Real Career and Defy a Bewildering Economy



Are you like me? Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible.





And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.





You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.





Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.





So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.





It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.





I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.









"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a Bewildering Economy. It is rare to find a person with a mind like yours, who can take a holistic systems view of things without being captured by specific perspectives or agendas. Your contribution to humanity is much appreciated."

Laura Y.