Millions of American families are about to be broadsided by rising gas and food prices and most of them don't even realize it. You see, most Americans stop listening when terms such as "quantitative easing" and "agricultural commodities" are brought up, but when millions more Americans are faced with a choice of either feeding their families or heating their homes this winter, maybe then they will start listening. Even before the Federal Reserve announced the latest round of quantitative easing, the price of oil has been going up and the price of food has been going up. Now that the Federal Reserve has announced plans to flood the economy with hundreds of billions more dollars, the inflation monster is going to get even hungrier. The household budgets of scores of American families are going to be stretched beyond the breaking point as prices rise. Meanwhile, the vast majority of U.S. employers will not be giving their workers raises to keep up with inflation. After all, why should they? If someone wants to quit there are hordes of unemployed Americans out there who would just love to take that job in a second.
Quantitative easing is being heralded as the solution to America's economic problems, but for hard working middle class Americans it is only going to make things worse. Inflation is going to soar while wages are going to stagnate at best. This will mean a lower standard of living for average Americans.
The kind of "trickle down" economics that the Federal Reserve is trying to play does not work in 2010. The advocates of quantitative easing believe that by flooding the financial system with massive amounts of new money, banks will eventually start lending it out to average Americans and that will spark an increase in economic activity.
But that is not the way the game is played in 2010. What happened with the bailouts and what happened with the last round of quantitative easing is that the big financial institutions took most of that cash and used it to pump up speculative bubbles all over the globe.
For example, Brazil's stock market has more than doubled since the beginning of 2009. Needless to say, it was foreign speculation that drove most of that activity.
Another place where we are seeing bubbles develop is in the commodities markets.
On Thursday, the price of oil topped 86 dollars a barrel. In fact, the price of oil has gained more than 6 percent just this week.
Unfortunately, there are a lot of people that believe that the price of oil is going to go a lot higher.
Lawrence Eagles, a top analyst at JP Morgan, recently caused waves when he speculated that oil could hit 100 dollars a barrel "much sooner than we expect".
OPEC Secretary General Abdullah al-Badri recently said that oil at $90 a barrel would not be a bad thing for the world economy.
Libya’s National Oil Corporation chairman Shokri Ghanem recently declared that his nation "would love to see $100 a barrel". In fact, there are quite a few OPEC officials that are publicly discussing the possibility of 100 dollar oil.
As the price of oil goes up, the price of thousands of other products will also go up.
Why?
Well, anything that must be transported is affected by the price of oil. So a significant rise in the price of oil will have a cascading impact throughout the economy.
But it is not just oil that is moving up in price. As the dollar has declined in 2010, prices for many important agricultural commodities have soared into the stratosphere.
A recent article on the Forbes website noted just a few of the key agricultural commodities that have absolutely skyrocketed this year....
Here’s what’s happened to some key farm commodities so far in 2010…
•Corn: Up 63%
•Wheat: Up 84%
•Soybeans: Up 24%
•Sugar: Up 55%
Anyone who believes that these commodity price increases are not going to be passed on to U.S. consumers is delusional. Literally thousands of food products are about to go up in price.
The rapid rise of some of these commodities has been nothing less than shocking. For example, the price of wheat soared from 158 dollars per ton in June to 271 dollars per ton in September.
That was a 71 percent increase in just a couple of months.
Just think about how many food products contain wheat.
This is quickly becoming very serious.
Now the Federal Reserve is going to be swamping the economy with hundreds of billions of dollars of new money.
So how much of that money do you think is going to end up in your hands?
When new dollars are introduced into the financial system, the value of all existing dollars goes down.
Soon your dollars are not going to go nearly as far as they did before.
Already we are starting to see some very troubling signs of inflation in the economy. For example, UPS has just announced that they are raising shipping rates by 4.9 percent.
Expect hordes of companies to announce price increases over the coming months. But with millions of Americans still unemployed, don't expect wage increases to follow. In fact, total wages, median wages, and average wages all declined in the United States in 2009.
We are entering a time that is going to be very difficult on most American families. Many are going to really have to tighten their belts to make it through this. Many others are simply not going to make it and will need our help.
The "good times" that we have been experiencing in America for decades are about to come to an end. All of the debt and all of the greed are catching up with us. A devastating financial collapse is coming and you had better get ready.
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