Gasoline Price Increases Trigger Global Inflation Fears
By Jerome R. Corsi, Ph.D. Co-Founder of Corstet LLC www.corstet.com
With the price of gasoline at the pump exceeding $3.00 a gallon nationwide and with the price of crude oil exceeding $70/barrel on world markets, fears are being taken seriously that the Biden administration’s plan to engage in a $7 trillion deficit-spending spree will trigger a wave of global inflation not seen since the 1970s presidency of Democrat Jimmy Carter.
With their enthusiastic embrace of the Green New Deal’s determination to cut back nationally on the use of hydrocarbon fuels, the Democrats controlling Congress have applauded President Biden’s decision to cancel construction of the XL pipeline. This decision not only cost American workers thousands of jobs, but also threatens to seriously reduce U.S. oil supplies.
As we enter the summer vacation driving months, U.S. oil producers are still employing only half the rigs in production before COVID-19 hit. Meanwhile the OPEC+ group led by Saudi Arabia and Russia have cut production some 10 million barrels/day, about 10 percent of global demand, waiting for higher prices to develop as market demand returns to pre-COVID-19 levels worldwide. With the gas price increases we have already experienced, motorists in the United States can anticipate seeing gasoline at the pump average $5.00 nationally by September.
Despite the Federal Reserve’s position that inflation is only a temporary phenomenon due to the re-opening of the U.S. economy, the Consumer Price Index (CPI) released by the Labor Department for May 2021 showed increasing inflation rising to 5 percent over the same month in the previous year, topping the 4.2 percent inflation rate in April. This puts the inflation rate at the highest level since 2008, the year in which oil peaked at $150/barrel. We now understand why the first few weeks of the Biden administration, the Federal Reserve quietly abandoned its previous policy goal to hold inflation at 2 percent. The Fed now appears to have conceded holding inflation to the 2 percent benchmark may be no longer achievable.
No less an investment luminary than Warren Buffett told the May meeting of Berkshire Hathaway shareholders that the cost of building new homes has increased given that the costs of wood and plywood are also hitting 2008 highs, up 171 percent since the COVID-19 pandemic started. “We are seeing very substantial inflation,” Buffett warned his shareholders. “We are raising prices. People are raising prices to us, and it’s being accepted.” Berkshire Hathaway owns Clayton Homes, one of the nation’s largest homebuilders, as well as companies including Benjamin Moore paints and Shaw flooring.
Nor is any relief coming fast from the Biden administration’s embrace of closer trade relations with China. Factory-gate inflation even in low-cost manufacturing China hit a 13-year high in May as Chinese manufacturers passed on surging prices of raw materials.
That the Biden administration is quietly worried about surging inflation was suggested on June 6, when U.S. Treasury Secretary Janet Yellen, the former chair of the Federal Reserve, spoke from the London G-7 meeting suggesting interest rate increases are no longer out of the question, despite the bullish attitude on inflation expressed by current Fed chair Jerome Powell.
“If we ended up with a slightly higher interest rate environment, it would actually be a plus for society’s point of view and the Fed’s point of view,” Yellen said, ignoring for the moment Powell’s determination to shrug off current inflation bad news with his determination to keep interest rates at zero, or as close to zero as possible – a key policy goal of the Fed’s continuing Quantitative Easing (QE) policy that has led over recent years to the Fed adding to its balance sheet several trillion dollars of Treasury and government-agency debt.
Deutsche Bank, Germany’s largest lender, has sounded the alarm that the United States may be headed for one of the most serious inflationary periods in history, arguing that the determination of the Biden administration to print trillions of dollars under the auspices of the Modern Monetary Theory, is shaping up to develop economic parallels to the inflation experience under FDR given the 1940s World War II spending, and to Jimmy Carter under the grip of the OPEC Oil Embargo of the 1970s. Deutsche Bank economists warned inflation in the United States could send the global economy into recession as the Federal Reserve, the nation’s central bank, loses control.
A weakening U.S. dollar and continuing high crude oil prices have re-ignited the rally in precious metals. Gold has resumed the push to top the technical $2,000/ounce trading range as gold once again has started to challenge $30/ounce. Gold and silver futures are both up in early-June trading, a clear sign that investors are anticipating a failure in Biden administration monetary and fiscal policy.
If interest rates rise to dampen inflationary pressures, or if the Democrats in Congress succeed in passing the tax increases Biden wants imposed on high-net worth individuals, on investors seeking capital gains, as well as a minimum tax on all U.S. corporations, the economy is almost certain to slow dramatically.
In his May subscription newsletter, economist John Williams, author of the well-followed blog ShadowStats.com, summed up as follows his concerns that the progressive economic policies of the Biden administration appear to be returning the United States to the “stagflation” experienced during the Carter years: “Evolving circumstances remain extremely strong for gold and silver, and weak for the U.S. dollar and stocks, despite Central Bank or other systematic machinations to the contrary.”
Please go to SwissAmerica.com to get your free copy https://www.swissamerica.com/rmp21.php of the 2021 Gold Report, to remain current on the economic impact of the Biden administration’s experiments with the Modern Monetary Theory. Under Biden, MMT as implemented in the first four months since the inauguration appear to promise massively increased government spending and substantially increased taxation on investors, corporations, and high net worth individuals.
As a result, the U.S. economy appears headed for another round of increasing inflation. All this increases the prospects the Biden administration will end up returning the U.S. economy to yet another cycle of recession-level depressed growth amid mounting cost-of-living inflationary increases in the price of food, gasolines, and the other household goods and services required to meet daily living needs.
Jerome R. Corsi, Ph.D., is the co-founder of Corstet LLC website. His new website, www.Corstet.com, is devoted to telemedicine, economic analysis that includes a specialty in gold and silver investing and annuity marketing. Since 2004, Dr. Corsi has published 25 books on economics, history, and politics, including two #1 New York Times bestsellers. In 1972, he received his Ph.D. from the Department of Government at Harvard University. He currently resides in New Jersey with his family