How Quickly Can Price Inflation Explode to the Upside?

http://www.economicpolicyjournal.com/2012/03/how-quickly-can-price-inflation-explode.html

An 1801 - present USDollar chart

A declining USDollar = diminishing purchasing power = price inflation. This chart tells enough.

Now we look at Siegel's calculation of the dollar's purchasing power from 1801 to 2008. It's a measure of inflation over more than 200 years.

In periods of inflation, which reduce the value of a dollar bill, the line falls. In periods of deflation, which increase the value of a dollar bill, the line rises.

This chart's message: In the 19th century, inflation and deflation alternated wildly, but the dollar remained roughly in the same range.

In the 20th century, inflation won out decisively -- except for the relatively short interlude of the Great Depression.

Because of this 20th-century experience, the value of the dollar has fallen precipitously, to a recent 6 cents. By an astonishing coincidence, the decisive move began about the same time as the Federal Reserve did.

Congress Created Dust Bowl

"Congress Created Dust Bowl"

That was the slogan on literally dozens of signs on both sides of Interstate 5, north of Los Angeles and south of Sacramento. The high winds of California's Central Valley created dust storms which reduced visibility to virtually zero last Monday, as on acre after hectare sat empty farm fields and orchards. Images of John Steinbeck's "The Grapes of Wrath" came to mind. Apparently, the drought and recession are taking their toll on farmers, as they can no longer afford fertilizer and water. I've read irrigated water costs $600 an acre now, up from $30 an acre pre-drought.

We had plenty of rain (and snow) earlier in 2009, but it has not made up for the previous 3 years of drought. With Las Vegas and southern California's appetite for water increasing annually, northern California and Nevada (the Sierra Nevada) just do not have enough water to distribute to their southerly neighbors.

What will this lead to? California is considered the world's bread basket, feeding half of the US, and a quarter of the world's population. If indeed farmers are letting their crops die and laying idle farm fields statewide, expect to see price increases in your grocery isles. Additionally, a weakened dollar will also increase commodity prices in the COMEX exchange. This will inevitably drive food prices up.

Michelle Obama and her daughters planting seeds for the White House garden wasn't just a Kodak moment--it was an omen.