You have been living under a rock if you haven’t heard: everyone is being bailed out.  “Bail out” is the quintessential word of the times, along with “Collaterized Debt Obligations” and “Frozen Credit Markets” (latter to a lesser degree)  (by the way, everyone says “collaterized”, although it’s not a word — the correct world is “collateralized”).

So what does it mean to you and I?  You know, the non-financial non-gangsters?  The people who will most likely NEVER see any portion of the untold billions doled out or promised to the losers of the financial world?

Not sure about y’all, but to me it means one thing: INFLATION.

Inflation if the most low-down, sneaky, and malevolent thief.  It’s the kind of thief who does not have the common decency of helping himself of only the obvious valuables in the house, but the one who goes for your insulin, antibiotics, car and house keys, passports, and then takes a dump on your doorstep and floods your basement.

It comes with helplessness and a feeling of being too small to be able to do anything … after all, EVERYONE is experiencing the same thing, and there is never a quick fix.  I’ve lived through periods of inflation in Eastern Europe, and it left a terrible aftertaste … the kind you get after flossing out a little piece of meat from between your molars a couple of days too late.

Why am I raising this now?

The United States does not have any savings to finance its incredibly aggressive domestic policies … therefore, she must either borrow the money, or print it.  Either way, the supply of money increases, and prices go up (nominally).

If someone continues to finance all this borrowing, then it’s a ‘good’ scenario for the time being — we’re back to consuming what the Chinese have saved, and everything is back on track.  If we simply print the money and stuff it in the coffers of those we’re bailing out, then eventually, those funds will hit the streets, causing the prices to rise.

Either way, the price of a Coca-Cola in the vending machine keeps going up even though it is probably the most lean and efficient consumer product ever produced … Why did it just jump by a quarter?  Is it now all of a sudden 20% more expensive to produce with all these downed commodity prices?

I believe inflation is happening as we speak, and it will only accelerate.  Check out this nice Q&A.