The worldwide picture is more complicated, but I would describe it as appreciation as well. That is worldwide demand for many commodities now has the potential to exceed worldwide supply, at least during times of shared economic expansion. With demand above supply, price will assuredly rise, but this simply represents a _real increase in value_ of the commodities in question: they are worth more.

If everyone, or just A Certain Special Country, prints money or in the modern variation pixelates vapor-credit to purchase increasingly expensive commodities, we could see inflation on top of appreciation. Some of the spike in commodities of the last half dozen years is of this variety as US vapor-cred ballooned price, which in turn promoted large-volume speculation in commodities which has further pushed up prices.

Prices are multi-strata because they have multiple inputs. It’s important to break out these input trajectories separately for analysis, at least the major ones. Single variable attributions for economic trends are most always inaccurate to the point of being flatly wrong. That was the real issue with ‘globalization models’ mentioned in another post today: they were restricted to one or two variables particularly to the advantage of Anglo-American capital while neglecting other strata in market creation.

nice quote from lovecraft but don’t you think we might already be in the dark age/fringes of it without even knowing it, the renaissance was about innovation but it was also about seeking true knowledge and information which is sorely lacking from the financial engineering sector as it stands; Ehrenberg , in that aspect, makes more (succinct) sense than cassandra. Just like the serf/master paradigm in the dark ages, investment banks have in their greed, ignored the very instruments generating their wealth and the hordes who have followed them blindly. Just as the Renaissance was about the rediscovery of information and knowledge lost, it’s also about an independence of thought the spirit of which was lost in the dark ages; so individuals and institutions in the financial community have the opportunity to re-establish themselves and the intellectual “processes and systems” which should be at the core of their operations.

Yves, it’s another dumb question but technically speaking , isn’t stagflation more of a temporary phase, a kind of bridge between inflation and deflation periods?Deflation is more or less predicated on 2 factors; the ability to spend and the willingness to spend. It will be ironic that the buildup to a world war was a factor in shifting the economy out of the depression in the 30s but that political instability of present times might well increase deflationary pressures. Any ideas anyone?

My inclination is to end that sentence with American hubris, not energy supply.

The unraveling of the financial markets, and the ensuing chaos to follow, feel to me like a perfectly natural parallel process mirroring the irresponsible, short-sighted, reckless behavior performed by our top political leadership.

The suits on wall street have been taking their cues from their political leaders.

The world has been fast losing “trust” in America and its largely “American-exceptualism-believing” population for some years under our current regime.

The world is indeed discovering the price or inherent worth of America.

Pre-emptive war, torture, rendition, institutional law-breaking, illegal domestic spying, politising of the Dept of Justice, suspension of habeas corpus, etc, etc.

All derivitives of a power/money mad economic and political system on steroids.

But that doesn’t mean we won’t see price inflation, because the price inflation will be coming from a different source, and that’s an energy supply and demand imbalance, and possibly a food supply and demand imbalance deriving partly from the energy imbalance and partly from abnormal weather patterns.

And you don’t have to remind me that energy demand will go down in a declining economy–we can agree on that in advance. But energy production is declining at a faster rate than the demand decline rate.

So, what I see coming is a long-term, grinding, very very slow shrinking of the world economy, but with higher prices for food and energy taking a continally higher percentage of the world’s income. The only way we could avoid such a permanent slow decline would be with serious investment in increased energy efficiency, and that’s problematic right now because of the credit crunch, which is partly due to Bernanke’s tightness with money supply.

And the higher food and energy prices will probably trigger gold bug buying while people can still afford to buy into that pyramid.

But the ultimate source of this crisis is shrinking energy supply, which is something few of the economists or finance guys will understand for a long time.

Moe Gamble

Somehow the opening paragraphs of H. P. Lovecraft’s Call of Cthulhu seem apt here:

The most merciful thing in the world, I think, is the inability of the human mind to correlate all its contents. We live on a placid island of ignorance in the midst of black seas of infinity, and it was not meant that we should voyage far. The sciences, each straining in its own direction, have hitherto harmed us little; but some day the piecing together of dissociated knowledge will open up such terrifying vistas of reality, and of our frightful position therein, that we shall either go mad from the revelation or flee from the deadly light into the peace and safety of a new dark age.

Of course, that doesn’t mean the FED can affect relative prices eventhough they are sure trying. And who knows? By favoring the asset they choose for their open market operations they may even succeed at that in the short run.

I’m with Cassandra: our best hope is _rapid_ price discovery, while the public authorities keep a firm floor under capital and the banking system so that basic economic function continues apace.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aHfkhe8.C._8&refer=home