see News : We are now in Recession!  After years of stimulus, endless government borrowing, and Zero Interest, we are in Recession …Again!

also see why are bond yields still so low?

Seven Reasons for the Appearance of Low Inflation

We have for years heard that nominal inflation was low and that there was no large rise on prices in general but the truth is that In reality there was a surge of prices but a few factors acted to hide that reality from the public

Food Was Expensive, Soaked Up Discretionary Spending

One was that because food was expensive during all this time,  it left little room for extra money so that people could buy other less necessary goods. So other goods, and services not crucial to existence were not experiencing the rabid demand that one might expect during a reflation period,  and so prices were seemingly lower for most non-essential products.

Rent Cheaper Due to Housing Boom and Bust

Rents were also lower. The housing collapse caused a huge availability of housing and this kept rents low,  so rents showed up as being relatively tame on inflation. But then again they went up big time during the housing boom so they were already quite high. But from year to year they were being measured as tame, though they were anything but.

Oil Came Down From Bush Presidency High’s

Another reason for the apparent “low inflation” we saw in the general media was that Oil prices had in fact come down from a gigantic high set during Bush’s presidency;  and this tended to suppress non-core inflation for most products and services.

ever wonder why do we have guns?

True this way, but oil was not cheap at all,  it was only relatively cheaper than during Bush’s time where at one time it reached one hundred fifty dollars a barrel so by those standards it was cheaper.

Great Recession Kept People From Spending

Yet another reason- perhaps the chief reason- inflation was showing up as contained  was that the economy was so depressed after the Bush years, that no matter how the faux inflation numbers were being reported in reality there simply was not enough economic energy to push prices up for non-essential goods like electronic gadgets and various other optional products and services. Demand being suppressed suppressed price in turn.

Outsourcing of Jobs

Add to that the fact that prices for manufacturing were being kept low due to the manufacturing migrations into China and Asia. As more and more companies went to Asia and South America and other places with loads of cheap labor prices were kept relatively low, even as profits soared beyond all reasonable expectations. In the end however, when inflation was measured it kept coming in low as companies would often migrate to another section the minute workers began to demand higher wages. This worked for quite awhile, but as we have pointed out before, once a nation experiences the influx of capital everything becomes expensive, including labor. Therefore we should begin to see a rise in foreign labor costs adding to the problem.

Cheaper Immigrant Labor

 The rise in illegal immigration kept local labor prices very low and so the domestic production of goods and services was costing less on the surface during the time of immigration expansion.  But ultimately the consequence is that as the rise in the immigrant population settles  it begins to increase demand for all goods, services and resources and so the effect is going to be very short lived. For as long as the water runs it feels cool to the touch but as soon as it stops running its real temperature increases. When all the new comers finally settle down, all the savings in labor are soon paid for with a severe rise in prices.

Super Low Interest Rates

Add to that the most profound reason of all,  which was  that the Federal Reserve was in a sense subsidizing the producers by offering extremely low interest rates and thus allowing large corporations, as well as the United States government  to borrow gigantic sums of money without ever actually beginning to pay anything back(just borrow ever more) and this kept prices very low since there was no pressure to raise prices due to costs. If there were costs, then companies could just borrow more money to cover the costs and keep prices at a level where they could still keep selling in large quantities. Of course the amount of money being borrowed was huge. That money is coming due, and as interest rates adjust, and nature takes her course, the real cost for all that borrowing is going to show up eventually.

The Real Cost of These “Inflation Busters” is now coming due

Combined all of these forces kept inflation seeming to be under control for many years.

However, the “free” trial period is now long gone and it’s time to get charged for all that service, and for all those years of artificially low inflation. All of these forces are now at their maturity, and their underlying cost is about to show up, and as this happens  we are about to hit a wall of fantastic inflation. In fact the economy may well collapse and even then we may well see prices far too high for people to afford the simple services and goods they need. Even as production comes tumbling down, availability will also come down, but due to the odd distribution of wealth we will see higher demand in some places thus prices will continue to surge until the system cleans itself out. The time is ripe for so very strange a set of economic oscillations that even Adam Smith would be puzzled.