big trouble at mill: usd, page-41

re: trouble at mill: hyper inflation or stagflatio Introduction:
We have the following kinds of inflation:
1. Monetary inflation-US.
This is a consequence of expanding the money supply without backing of additional goods. The artificial GDP of the US has been about 3% over a number of years, yet they increased the money supply by 7-8%. We don't know the latest numbers because M3, the measure is not anymore supplied. Sufficient monetary inflation leads to price inflation.

2. Price inflation-US.
2.1. CPI-Consumer price inflation
2.1.1 Core inflation.
This falsified FED number does'nt include energy, food. The Fed likes referring to it because it tends to be the lowest unrealistic rate of inflation.
2.1.2 CPI-Includes all.
This grossly distorted CPI when quoted at say 3% is in reality about 6% (Real CPI):
http://www.gillespieresearch.com/cgi-bin/bgn.

Based on one set of monthly data, the real CPI is running at 10% annual rate while the import pricing is now running at 22% (Based on 2 sets of data: 1.6% and 2.1% monthly)
Some of this increased import pricing will be converted into the CPI and I believe that the previously mentioned 10% could continue for some time. Inflation is worldwide so the product of this is being exported on a delayed basis to other countries including the US who is a major importer.

3. Sufficient data now point to a slowing down of the economy. Unfortunately, the true CPI (Price inflation) is increasing. Greenspan allowed the interest rate to be well below the inflation rate and the 5.25% FED rate is about 4.25% below the true inflation rate based on latest data. This has led to credit expansion and further increase of the money supply. Theoretically, money is still cheap, although there may be less takers.

Unfortunately, Bernanke who was so fond referring to the core CPI rate now has to make a painful decision:
Either keep increasing interest rates and speed up these increases so as to catch the true inflation rate or do nothing.

If he does nothing, then hyper inflation is coming closer as increasing inflation feeds upon itself assisted by inflated money supply. I believe, he can't afford to do that as his current interest rate is too far below the true CPI.

Or he will be drastically increasing interest rates and heavily damage the housing sector. It will slow the economy even more and because this sector is so important, make any stagflation worse. ( A nominal 3% GDP rate is about a real 0% growth rate-J. Williams).

The USD will fall because the backing becomes worse.

Because debt is astronomical and saving is less than NIL, it will be difficult to escape any fall-out, no matter what course is taken.

I believe that Bernanke has underestimated the delayed reaction of inflation from overseas and the outcome of increased money supply designed to make debt cheaper.

Gerry