Spot The Start Of The End Of The Keynesian Dream

For those unfamiliar with the Baltic Dry Index, it measures the cost of moving raw materials (including crude oil) by sea, so it's a good indicator for the robustness of international trade.  With the index sinking, it indicates global trade is sinking--which normally translates to lower oil prices as a function of demand destruction.  Unfortunately--and counterintuitively, oil prices have remained elevated, which infers global currency induced cost push inflation.

Breaking it down to layman's terms:  despite a sinking global economy, instead of reduced demand causing falling prices, crude oil prices remain crushingly high as central banks worldwide debase their currencies.  This high inflation (despite "official" low numbers) causes a further dampening effect on the world economy.  In other words, easy monetary policies by central banks are intended to stimulate economies, but the endless printing of currency further aggravates the world economy.

The take away message is that as economies continue to stumble, central bankers will continue to print more currency units, locking us all into a death spiral of inflationary stagnation.  Hence, the term "stagflation" was coined in the 1970's to describe the same phenomenon.  It was a bad era then, but it will be worse today going forward because we have an untenable debt situation.

http://www.zerohedge.com/news/2012-11-11/spot-start-end-keynesian-dream