Just a quick Econ 101 lesson on inflation.
This has been making the rounds, and it's not a good sign.
I will leave out the implications of inflation to our personal and economic well being, and focus instead on its source. Yes, rising energy costs are going to play a big role in rising inflation, but don't forget the other component, a huge national budget deficit. The US government, with the already planned deficit plus the Katrina costs, is probably going to spend 400-500 billion dollars more than it takes in this year. This increases the amount of debt that must be sold on the world markets and depresses the value of the dollar.
Quite frankly, this will not be the major component of inflation, rising fuel prices will claim that role, but we should not forget that the cut taxes and spend policies will have an impact on a weaker dollar which means you can buy less for that dollar.
Another Fed official said policymakers would be alert to "surprises" in inflation.
I will leave out the implications of inflation to our personal and economic well being, and focus instead on its source. Yes, rising energy costs are going to play a big role in rising inflation, but don't forget the other component, a huge national budget deficit. The US government, with the already planned deficit plus the Katrina costs, is probably going to spend 400-500 billion dollars more than it takes in this year. This increases the amount of debt that must be sold on the world markets and depresses the value of the dollar.
Quite frankly, this will not be the major component of inflation, rising fuel prices will claim that role, but we should not forget that the cut taxes and spend policies will have an impact on a weaker dollar which means you can buy less for that dollar.
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