Friday, June 26, 2009

Cap and Trade May Be The Catalyst For Inflation

Recently Warren Buffett and Alan Greenspan joined the chorus warning about serious inflation down the road due to the vast amounts of money being spent by the Federal Government. The Obama administration rebuttal is that we won't have significant inflation because we have so much excess capacity and unemployment. When the economy improves causing business to start sopping up capacity and employment starts tightening, the fed can remove liquidity from the system and moderate any brewing inflation. Yeah right.

At present wage and price inflation isn't a pressing issue. Financing inflation is a fact and government borrowing rates would be a lot higher without the Fed's market support. I suspect that the voracious needs of the U.S. Government will continue to meet growing scepticism from bond buyers and result in continued interest rate inflation. Higher government rates will lead to increases in all categories of financing.

Cap and Trade taxation is thought to cause utiity bills to rise 25%, Per David Sokol-Buffett's utility guru, and gasoline will also experience upward price pressure as refiners and retailers pass on their additional expenses. Utilities and gasoline are expenditures that Americans can't postpone. There is very little discretionary nature to those expenses. Even with unemployment at 10+% there will be agitation for wage increases to help absorb the additional costs affecting consumers. Hence, going green is going to lead to demands for more green, paychecks.

I remain hopeful that sanity will return to the U.S. Congress, but I'm attempting to prepare for the inflation that is increasingly likely in the next few years.

1 comment:

Erica Smith said...

I want to make 1 guest post in your blog, if you permit me. The post contains 300 words above and totally unique. Please contact me at ericasmith568(at) soon. Moreover, I will place your link in one of my finance pr2/3 sites.

Add to Technorati Favorites