Textbook Economics

Well, the PPI numbers were released and although there will be those that seem surprised, it is certainly no surprise to me. As I have been saying repeatedly over the past year, when you increase the supply of dollars, it eventually shows up as price increases. In the past, the price increases came much quicker because we were not peddling our debt to foreigners. Not so today, and as those countries that depend on the U.S. consumer to buy their products, they have been all too happy to buy our debt with all of those dollars we keep sending them. Even though they know and we know that they are worth less every day.

So, the numbers are not pretty. On a 12-month basis crude materials are up 22.1%, energy goods up 44.8%, intermediate goods up 8.4%, and finished goods up 5.4%.

The result of all of this? Either companies have to cut margins, meaning a drop in earnings (bad for Wall Street), or a fairly hefty increase in consumer prices. Since most CEOs own stock and options of their companies, I would bet on the second option as no one is going to want their stock (and thus their pay) slaughtered in the market.

And then what? With prices rising, we will see demand falling. Good ole econ 101. Demand falls, companies loss money, more workers are laid off, people start losing their houses and SUVs, and the economy tanks.

Throw in any of the proposed tipping points we have been discussing here and you have a severe recession or worse. Can you say inflationary depression? I thought you could.

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