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Two inflationary days

Producer prices rose 1.7 percent in August, but the Fed went ahead with QE3. Is the US economy about to experience some serious inflation?

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Bob Gathany/The Huntsville Times/AP/File
People help assemble helium balloons for John Ninomiya, to connect to using a harness, during the Alabama Jubilee Hot Air Balloon Classic in Decatur, Ala in this 2006 file photo. Karlsson argues that the Fed's actions are setting the US economy up for a serious bout of inflation.

First we hear that U.S. producer prices rose 1.7% (annualized 22.4%) compared to the previous month in August.

Then Ben Bernanke said that wasn't enough, so he will take his helicopter, model QE3/QE5, out for a round.

Then the Fed stated that money supply rose 0.3% the latest week alone, causing the annualized 3 month gain to increase to 8.6% and the yearly gain to increase to 7%.

And then the U.S. consumer price index rose 0.6% (annualized 7.4%) in August.

And as a result of Bernanke's new Helicopter tour, the dollar has plunged, while commodity prices have soared while the yield spread between regular and inflation protected U.S. treasuries have soared.  The yield on the 5-year inflation protected "security" is now by the way as of this writing -1.66% (do note the minus sign), illustrating the point I've repeatedly made that the only thing safe about them is that those who invest them will lose part of their savings.

So, it is clear that unless the European debt crisis again worsens and again causes a surge in demand for dollar  assets, there will be a big increase in price inflation soon.

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