But It’s Deflation


Or is it inflation?

Gas prices are at their highest since October, 2008.  According to the FDA, food will go up about 4% this year, but the FDA tends to set the gauge lower than reality dictates. The economy is slowing and inflation is rising. Stocks are going up but it’s based on a dollar worth less than it was worth a year ago.

The value of the U.S. dollar is measured in exchange rates (its value to other currencies) and Treasuries (the dollar is in sync with demand for U.S. Treasuries). The demand for the dollar is sinking due to fears over our high debt to asset ratio. Investors are gradually leaving the dollar, once considered a safe haven.

When the debt rises, the only way to pay it off is with higher taxes and inflating the value of the dollar (the Feds are auctioning treasuries to pay debt but the more they do so, the less the dollar is worth).

2002 – 2008 – The dollar fell 40% as the U.S. debt grew 60%. In 2002, a euro was worth $.87 vs $1.27 on August 13, 2010. (Source: Federal Reserve Bank of New York, Historical Exchange Rates)

2008 – The yield dropped from 3.57% to 2.93% (April 2008-March 2009), indicating strong dollar demand. Prior to April 2008, the yield stayed in a range of 3.91% – 4.23%, indicating a stable dollar demand. This made it a world currency. (Source: U.S. Treasury, Daily Treasury Yield Curve Rates)

Consumer fears over the rising prices of food and fuel are reflected in recent polls.