Last modified: 2008-04-11 11:03:59 by genesis

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"this week has been enlightening"

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Inflation's Very Scary
Robert Lenzner, 04.11.08, 6:00 AM ET

It's pretty hard for Croesus to believe that the rate of inflation is only 3.4%, given the sharp rise in the price of food, gasoline and other sundry daily necessities.

Kimberly Stevens, a 42-year-old resident of Lewisville, Texas, and a Croesus follower, is also refusing to buy into the official Washington line that the nation's inflation rate is only 3.4%. This outraged reader says, "As far as I am concerned, Bernanke, President Bush, Clinton, Obama and the rest of them live in a fairy-tale world. They do not go shopping each week and have no idea what the cost of goods is."

Stevens, a $90,000-a-year e-commerce solutions architect has been peppering Croesus with the real facts of life. A gallon of the Horizon organic milk she buys for her two boys has soared from $1.99 to over $5, an increase of 250%. In the past year, a loaf of bread has surged nearly 50%--to $2.29 from $1.59. Her Kraft cheddar cheese has gone from $1.99 to $2.50 for an eight-ounce package--a 25% rise. A dozen extra large eggs are up from 79 cents to $1.19, or about 50% , while ground beef, Stevens insists, is up more than 60%, from $1.79 a pound to $2.99.

Croesus' source in small-town America doesn't think "people will be able to afford to go to work this summer" when she predicts gasoline will hit $4.50 a gallon. "My Jeep cost $35 a week to fill in 2005 when we bought it. It is now over $60 to fill. In the past month gasoline has gone up over 75 cents (a gallon)."

The cost of food and fuel for a month are $1,300 higher, "a big hit in a family budget," she insists. "American people cannot continue to survive and fund our great economy with more and more of our income going to pay to get us to work and home again."

"You cannot tell me that is 3.4% inflation," Stevens writes. "Who is the government and the Fed kidding? I am not that stupid, and I can bet most wives/moms who are grocery shopping know there is no way that is 3.4% inflation. Do they think we forget what prices were a year ago?" This is a middle-class professional mother and consumer--the heart and soul of America--who is clearly resolutely focused on the daily cost of feeding her family.

Indeed, Croesus has discovered that wheat has been trading between 50% and 80% above 2007 prices. Dairy products have witnessed the largest gains compared with last year, ranging from 80% to 200% higher. This is caused by higher animal feed costs and tight dairy supplies. Monthly milk prices on the Chicago Board of Trade have more than doubled in the past two years. Crude oil prices have risen 15% so far this year after soaring 57% in 2007.

The Dow Jones-AIG commodity index overall is up 14% just since January. Can it be that commodities are trading on their investment quality as tangibles rather than because of supply-demand factors? Does that even matter when it comes to the impact on inflation?

Croesus believes this mad rush into commodities by SmartMoney is caused by its seductive quality as flavor of the month speculation by those across the globe betting against the U.S. dollar.

Former Fed chairman Paul Volcker warned this week that monetary policies to ease the recession might well be leading to higher inflation and a run on the dollar. He predicted OPEC would soon price oil from a basket of currencies rather than the dollar.

Can it be that the way the Fed figures inflation needs a thorough overhaul? The powers that be may think it is better to not know, to be dumb, or, at least, to play dumb. The middle class, after all, according to former Treasury Secretary Lawrence Summers, is taking it in the chops, as its gross income level hasn't appreciated at all despite an economy that has grown in aggregate the past seven years.

You'd think a household with gross income of $180,000 would not be complaining, but Stevens insists, "We are struggling along." Her husband, David, is a computer programmer, who is about to lose his job because his employer is going out of business.

Ms. Stevens' own earning power before Sept. 11 was $125,000 as a project manager, when that industry was cut back substantially. To make do, Ms. Stevens sells Mary Kay cosmetics out of her home, earning about $10,000 and gives horseback lessons to pay the expenses of the four horses her husband is raising, which cost $900 a month to feed and house. David Stevens hopes to raise and train horses for a living someday, a business that is widespread in the state of Texas.

Ms. Stevens believes the Bush economic stimulus package is ridiculous. She's no dummy and stays abreast of the nation's problems. "The government doesn't have the money to fund Social Security, Medicare, the Medicaid Drug Plan. And they want to take money that they are supposed to be using to manage the country's defense and infrastructure and send to citizens to spend at Wal-Mart? Can you say stupid?"

She's also outraged that a Democratic president might raise taxes on couples making over $63,000 a year. Which seems mad if true, doesn't it? In most parts of the country, $31,500 a person (pre-tax) is all but poverty level.

Stevens concluded her message to Croesus by backing a general anxiety across the nation not supported by establishment economists. "I think the consumer--your neighbors and mine all around this country--are in for a bigger hit than economists see," she says. "I think [that] this recession is going to be deep and long (I am guessing 18 months) and that at the other end I'm not sure what we will find."

Last modified: 2008-04-11 15:45:03 by richard112360

Last modified: 2008-04-11 16:30:39 by supercleanfund
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