Measuring the Decline of America

So, here I was, working on a contrarian (you ought to know me by now!) diary about inflation being near or past its peak for this cycle (which I'll post tomorrow anyway), when I realized that nobody should give a damn! After all, if there is ZERO percent inflation in the price of unleaded gasoline in the next year, what does that mean? It means that gasoline will sell for $4 a gallon for the entire next year! That's why it's worthwhile to post this graph all over again and highlight it:

because this is a graph of the decline of middle America over the last decade. The average American family hasn't had a raise since 1999, and in fact for most of this decade has brought home less income (inflation adjusted) than it did at the peak of the Clinton boom:

These two above graphs taken together show it bluntly: America hasn't had a raise during the entire Bush/GOP malAdministration, but it's costs -- not for discretionary items, but for essentials -- have gone up nearly 10% as a percentage of its take home pay. As more and more income is being used to pay for food, medicine, housing, and energy consumption, Americans have had to cut back on those items which aren't necessary for living, but make what we have always been told was the "American way of life" enjoyable. No wonder 80% of Americans believe the country is on the wrong track: for them, it is!

This fits nicely with a blog entry posted by Barry Ritholtz today, about how producers are having to eat more and more price increases, and unless they can pass those prices on to consumers (which by and large, they can't), their profits are suffering. Another way of looking at who has had to eat price increases is to check out this graph, which reflects the prices of crude material inputs (blue) with finished producer goods (red) and consumer prices (green):

What the graph shows is that, starting in 1982 and up to about 2000, the prices of crude material inputs stayed absolutely flat. Producers were gradually able to increase their prices, however, and more than pass them on to consumers, driving record corporate profits (and the great bull stock market of 1982-2000).

Since 2000, however, commodity prices like oil and metals have more than completely made up for lost ground. Now producers are paying more, relatively speaking, than they ever have since the dawn of Ronald Reagan's presidency. And they are gradually more and more unable to pass those price increases on to ever more strapped consumers.

The result is what I described yesterday, in which as food and energy prices soar, other prices must stagnate or decline. This means that the non-food, non-energy measure of consumer inflation (the core rate) is actually moving in the opposite direction of food and oil, i.e., "core inflation" is decreasing!

Thus, to return briefly to my originally intended topic, when one derives the "overall" inflation rate, which includes both surging food and energy costs, and stagnating or declining discretionary goods prices, the tug of war creates an inflation rate which peaked half a year ago, and for the fifth straight month now for both producer and consumer prices, has failed to exceed that high water mark of inflation in this cycle:

The forces of inflation and deflation are duking it out, and the contest is about even at the moment. This final graph, showing commodity prices(oil in blue, wheat in red, corn in yellow, and gold in, well, gold) courtesy of Bloomberg,

show that commodity prices of every other item save oil either peaked or stabilized a couple of months ago. Runaway inflation at the moment and into the future looks like the story of one and only one item: oil.

Right now the price of oil is measuring, drip by drip by drip, the decline of America.

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Comments

drip, drip, drip

I keep having this image of tectonic plates crashing into each other and right in the middle are US citizens. CRUNCH.

I saw something today that Geo Metro's are now selling like hotcakes. Now isn't it ridiculous that a 12 year old car you can no longer get, has better gas mileage that even these new hybrid? and why isn't that the national emergency to give people tax incentives and demand auto manufacturers immediately offer high mileage vehicles?

Very good diary I was just thinking we needed to analysis the policy positions of candidates as well as track the history of energy spikes, inflation, recession, middle class squeeze.

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My Favorite Book on Economics....it being the most recently...

...read The Origin of Wealth by Eric Beinhocker comes from, the increasingly common perspective of using Darwin's evolutionary theory when analyzing any system composed of agents that can be assumed to evolve. Since economics is the analysis of a certain kind of human activity it is posited that it's subject to Darwin's theories. Using the concept of a 'business' which I wont' go into the definition of here but which is pretty much what you think it is interesting conclusions are drawn. Most startling is that assertion that individual 'businesses' cannot 'live' forever. Period. Interestingly according to some studies General Electric is the oldest 'business' on the planet.

I took that little excursion 'cause I think it part of a new way of looking at things that should be important to folks who visit this blog and by way of introducing my anecdote.

Not ten blocks from my residence on a commercial corridor street a Cadillac dealership sat and sold Cadillacs for decades. Through the 70s even.

Recently they moved...went under...I don't know. The just disappeared on day. The building, specifically designed to sell cars with big, high-ceilinged glass walled showrooms sat empty...

Until three months ago when it filled up with a melange of vehicles: scooters, dinky cars, midget vans manufactured overseas in a number of different countries. NONE of these were American made. They were ALL however......

ELECTRIC POWERED EACH AND EVERY ONE.

While Detroit has fiddled, while Japan has dithered...India, Bulgaria, Russia, Korea all have seen the writing on the wall.

Electric cars are the future. Forget high speed trains except as a replacement for airplanes. Forget most of all 'light rail' just look out your window and what do you see: Tens of Trillions of dollars in roadway infrastructure designed to carry things we call 'cars'. We have neither the time nor the money to change this before Peak Oil's effects are upon us, some say they are already here, but with the implementation of Solar Grand Plan, Wind power and other sustainable sources we can all plug our electric cars in at night, the period of lowest electrical demand and leave the competition for oil to the Russians and Chinese.

That is if we can get some politicians in office who can actually use their minds for other than accruing 'power' to themselves. As Robert pointed out in a recent post today's campaigns are about gender, race and personality. A long way from where they need to be.

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'When you see a rattlesnake poised to strike, you do not wait until he has struck to crush him.'