<David... We can argue all we want, but imo true inflation only occurs to the extent that production capacity is strained beyond its means to meet demand. Too many dollars chasing too few goods.>
First of all you can see from an article just posted on this thread, that indeed economists count 'externalities' plenty when talking about inflation:
"Panicked central banks around the world, from Europe to Canada to Australia, have been forced to match some of the Fed's rate rises to stop their currencies from losing further ground against the US dollar. They worry that devaluations will increase import prices and ramp up inflation."
Yes, government induced inflation is from monetary authorities creating too many dollars... which many argue is what's been happening in the past several years [check M1].
However, in the case of the oil 'crunches', you can call it whatever you want, but the whole problem is there are no other providers or substitute products for oil except in the long run. You can call it what you want, but again, taking a simple economy of say 4 products, 3 produced domesticly and 1 imported [oil], if oil p doubles, ceterus paribus, the overall price level is up 25%. Now the govt has to decide if they should print 25% more money [as they did in the 70's] or let the other 3 industries "feel the pain" as money is siphoned off from them. With fixed costs and debt on the moon [today's overleaveraged economy] I really don't wonder what the government would do... maybe others do, I don't. That's why I'm buying Gold stocks.
Bottom line IMO: Higher oil prices no matter what the cause [what if north slope went dry... it's no different that the Saudi's holding back supply] is inflationary... to me it's obvious. Sure "long run" we'll get replacements, no doubt and that's great, we should have them already, we certainly agree on that. But that can take years as we know, and politicans don't wait around for these types of things. Money will be printed [like they haven't already been pumping away... thats the funny thing!], dollar will go down = gold up. All MO only, do your own DD.
DAK |
