Major Inflation Bubble About to Burst

While everyone seemingly has their heads in the sand, there is a major financial crisis looming that will cause still another devastating blow to the economy of the United States. How many more of these can we take?

While the reported inflation rate is running about 2% and lower, the REAL inflation, what it costs to actually live by, is running about 15%. This includes food cost that has skyrocketed, gasoline that has doubled over the last 4 years, healthcare costs, clothing, all kinds of tax and fee increases, and the higher cost of many necessities. In fact, 15% may even be a conservative number. The 2% number is not realistic vs. the actual financial impact upon the American people.

At the same time the Federal Reserve has artificially and dramatically suppressed interest rates over the last 4 years. The thinking is that low interest rates will stimulate investments while at the same time easing debt burdens. During normal times this might be a good thing, but these are not normal times, in fact far from it.

What is actually is happening is that investments are not occurring for a variety of reasons that can be summarized by saying there is no confidence in the direction of our economy. Growth is stymied. Artificially lowering debt burden is only delaying the inevitable and temporarily avoiding the responsibility for the debt. Think about placing your hand on top of a balloon filled with water and continually pushing down. The predictable will happen, the balloon will burst. We are now at the burst point.

Low interest rates are actually hurting the economy in several ways. Seniors, at the later stages of life, have generally two objectives for their life long savings. One is to help their children and grandchildren, the second is to enjoy life, and that means spending. Yet on a fixed income they are in a severe financial squeeze. Interest on savings is close to zero. Secondly the money that they have saved is increasingly losing value through real inflation. The result is that they don't spend as normal, their money is not going into the economy as it normally would. The second major negative impact due to artificially suppressed interest rates is on small community banks. They are also in a squeeze since a good part of their income results from home mortgages and small business loans. Their profit margin, by low rates, is pushed way down. In fact, there is little incentive to loan money. This also has a major negative impact on the economy. This is the reason we see so many of the smaller banks being swallowed up by the larger banks...not a good thing for the country. The larger banks don't worry about this issue since they are "protected". Protected with taxpayer money.

While all of the above is going on the Federal Reserve is printing money, flooding the economy, at the tune of $ 40 billion per month, or $ 480 billion per year! By flooding "paper" into the market, with nothing to back it up, obviously the dollar will be worth less and less.

Another factor is that according to the U.S. Census the median household income fell by 1.5%, people are making less money in a very difficult economy. In addition it was reported that 46.2 million Americans were in poverty in 2011 and we have about 23 million people either unemployed or underemployed.

All of the above is a formula for sure disaster and you can count on it, there will be no avoiding it. We have real inflation (today) running about 15 %. Artificially suppressed interest rates are actually hurting seniors, small banks, and the economy, as well as avoiding reality. People have less money and the money that they do have is worth less. A large number of people have either have no income or very little income. The Federal Reserve is flooding the economy with "paper" and this will make the dollar worth much less since there is nothing to back it up.

Within the next 2 years the bubble will burst and result in super inflation. The price of even items necessary to live by will be astronomical. An already delicate economy will go into a tailspin from which it may never recover. This is clearly predictable.

With a sense of urgency we need to take our heads out of the sand on this and begin addressing the fundamental issues discussed here. Immediately!