The chart and index below are pretty scary. Peak oil has wrecked our economy such that we need to debase our dollar to try and jump start “growth.” Or at least the appearance of such. The result is nothing but plain old stagflation. Remember, stagflation is the unique set of circumstances when prices rise but wages don’t. The cost of the typical commodity basket is up a total of 31%. The cost of food is up nearly 25% in a year.
Yet, our wages haven’t risen, and in fact they’ve been falling – From the Financial Times: “Between 1997 and 2008, median U.S. household income fell by 4 percent after adjustment for inflation…..” “…the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. […] In the last expansion, which started in January 2002 and ended in December 2007, the median US household income dropped by $2,000 – the first ever instance where most Americans were worse off at the end of a cycle than at the start. Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility…”
So, everything costs more, but we have less to spend. That doesn’t sound like a good recipe for reviving the consumer economy, which is 70% of the US economy. And it’s worse for the least among us perhaps than its ever been – see the chart at the bottom.
The impact of these rising costs will be felt the hardest by the poorest among us, of course. That’s 60 million people
Commentary from Zero Hedge:
“The above chart prepared recently by JPMorgan demonstrates something rather scary, and makes it all too clear how the Chairman’s plan to “assist” the US population via some imaginary “wealth effect” due to QE2, is about to backfire. As is now becoming very evident, the prices of energy and food products are about to surge, and in many cases have already done so, but courtesy of some clever gimmicks (Wal Mart selling what was formerly 39 oz of coffee as a 33.9 oz product for example) the end consumers haven’t quite felt it yet. They will soon. There is a limit to how much every commodity can open up before it appears on the SKU price at one’s local grocer. And while a marginally declining “core CPI” is irrelevant for this exercise as it measures only items that are completely outside of the scope of everyday life, what will be far more important to end consumers will be the push higher in food and energy costs. The problem, however, is that for the lowest 20% of Americans, as per the BLS, food and energy purchases represent over 50% of their after-tax income (a number which drops to 10% for the wealthiest twenty percentile). In other words should rampant liquidity end up pushing food and energy prices to double (something that is a distinct possibility currently), Ben Bernanke may have very well sentenced about 60 million Americans to a hungry and very cold winter, let alone having any resources to buy trinkets with the imaginary wealth effect which for over 80% of the US population will never come.”