Inflation in Plain English

I know... A lot of your eyes glaze over when you see words like 'inflation'. Its understandable. Guys like TZ, Jamie, Res Ispa, and Vox start tossing around acronyms and trader jargon and most us would rather just turn off our brain.

Something bad is coming though, and I feel like its as good a time as any to tell you about it, as plainly as possible.

Lets start with energy, one of the few things that everyone has to have. Oil and Gas for heating... Gasonline to run the cars... Electricity to run the pc's, lights, and microwaves. It's the one thing we all buy, all the time.

Now switch gears and think back to high school economics. Remeber the law of supply and demand? Why are diamonds worth more than paper? Exactly... because they are uncommon and everyone wants them.

Time to get to the point. A decade ago only a tiny number of people in China owned cars. As recently as 1999 only 200,000 were sold. This year alone more than 2 million cars will be sold in China. China will have 30 million cars by 2010, just as many as the good ol' US of A. That's an enormous pressure to put on supply.

What's that going to do to the cost of Energy? If you said, it's going to skyrocket, move to the head of the class.

Historically, whenever there has been a sudden massive demand on energy like this... well... Something Wicked This Way Comes.

You think $1.90 per gallon is a high price for gasoline? HA! Just wait.

Now lets look at your pocket. Remeber 1998? How much was gas back then? I don't know about you, but I remember payin' 99 cents for a gallon of the stuff. What about milk? How much was it back then? $1.50? It's almost $3.00 now. How about real estate? If your area is like mine, then you've probly seen the housing market boom over the last 10 years too. I know that a house my parents looked at in 1992 has more than doubled in value, and my house has increased almost %50 in just 3 years.

So prices go up with time... that's ok though, because we all get cost of living raises right? So I'm sure all of you are making double what you were 5 years ago, right?

Welcome to Inflation boys and girls. Prices go up, wages remain stagnant or decrease. You work just as hard, and probably harder than you did before, and you watch helplessly as the money you earn buys you less and less.

It's happening all over America, and all over the world right now. The talking heads are doing their dead level best to spin it away, but in the end, it's futile talk. The die is cast.