Inflation: The Calm Before the Storm

Inflation: The Calm Before the Storm
Prices for gas at an Exxon gas station on Capitol Hill in Washington are seen March 14, 2022. (Win McNamee/Getty Images)
James Gorrie

A massive inflationary storm is on its way in this country. It’s bad now, but it’s only going to worsen sooner than later.

Why would this be?

There are several factors, but the biggest factor is the war. Not the war in Ukraine, but rather the war against the dollar. There are many moving pieces, but the key point is that the world is moving away from the dollar.

In fact, there’s a global war against the U.S. dollar. There are a variety of reasons for this.

A Debt-Laden Dollar Means Weakness

For one, the U.S. national debt is simply unsupportable. Since taking office, the Biden administration has added more than $6 trillion to the balance sheet in liabilities. That alone has hurt the credibility of the United States as an economic power and the dollar as a viable currency in the future.

A little context helps explain what’s happening.

A currency can be measured by the strength or value of the commodity that backs it, such as gold or oil. But it can also be measured by the strength of its issuer’s economy or, as is the case at this time, the currency issuer’s ability to impose its will on others.

As a fading hegemonic power, the United States has passed through two of these phases and is now in the last one.

Leaving the Gold Standard for Oil Standard

Recall that the United States left the gold standard in 1971. Market disruptions followed because without an anchor reserve currency based on the value of a tangible commodity, it’s difficult to establish pricing for goods and services on the international market.

The linking of the dollar to oil in the mid-1970s solved that problem. The world’s oil producers and exporters cartel (OPEC), led by Saudi Arabia, agreed only to sell oil in the global market for U.S. dollars. What’s more, the Saudis also agreed to store their surplus revenue dollars, or “petrodollars,” in U.S. government bonds.

This arrangement stabilized the dollar and created a huge demand for dollars among all trading nations. Not only was oil only sold in dollars, but so were the vast majority of products traded in the world.

Adversaries and Allies Leaving the Dollar

But today, we’re seeing the de-linkage of the dollar from oil, accompanied by an implosion of U.S. leadership on the world stage and catastrophic economic policies at home.
Offshore, adversaries such as China and Russia are waging war against the dollar by either backing their currencies with gold and other metals, oil, and grain. They also require the purchase of these goods in yuan and rubles, respectively. Both nations have sought to de-dollarize their economies for years.

But it’s not just U.S. adversaries that see the U.S. decline.

Some of our most reliable allies in the world are ditching the dollar in one way or another. Japan, a U.S. ally and the biggest overseas holder of U.S. Treasury bonds, is dumping them in record amounts. Japan sold about $60 billion in the past three months alone. More selling is expected going forward.
An oil tanker is being loaded at Saudi Aramco's Ras Tanura oil refinery and oil terminal in Saudi Arabia on May 21, 2018. (Ahmed Jadallah/Reuters)
An oil tanker is being loaded at Saudi Aramco's Ras Tanura oil refinery and oil terminal in Saudi Arabia on May 21, 2018. (Ahmed Jadallah/Reuters)
Saudi Arabia, a longtime U.S. ally, is also dumping dollar assets. The oil-rich leader of OPEC has dropped its holding of U.S. Treasurys by a whopping 36.7 percent in the past two years alone. The Saudis are also considering selling oil to China, their largest customer, in yuan—not dollars. Even Israel has recently decreased its dollar reserves in favor of the Chinese yuan.
Why is this happening?

US-Led Global Order Is Disintegrating

Our allies and adversaries alike know that the U.S.-led global order is disintegrating. They also know that it’s the direct result of the Biden administration’s passive posture against China and Russia. The United States has failed to stand up to either successfully.

There’s no credible currency without credible leadership.

Furthermore, the world realizes that without the United States demonstrating the will to lead the world and economic discipline, the reasons for holding dollars—a fiat currency with nothing supporting it but confidence in America—are going away fast.

Domestic Deception of Inflation

Domestically, the U.S. economy is drowning in debt but continues to spend record-breaking amounts. The combination of these factors is leading to inflation, even though it’s being hidden or underreported.
In the fact-free world of the Biden administration, deception is the currency of the realm. The official inflation rate is a prime example of this. In March, the official annual inflation rate was reportedly 8.5 percent, up from 7.9 percent in February.

That sounds bad—and it is—but it doesn’t reflect the true reality. The real inflation rate—the cost of everyday products and services that impact the middle and lower classes the most—is actually much higher than the White House and the Democratic Party want you to believe.

For example, the average price of a gallon of gas is up about $1.41 per gallon from a year ago, to a record $4.42 per gallon. Yep, that’s a big jump in price. But when you factor in that the national average price of gas was about $2.17 per gallon in 2020, the price of gasoline has actually doubled.

What about food prices?

The official inflation rate for food in March 2022 over March 2021 is 10 percent. But corn prices have doubled over the past year. Corn is used in all kinds of products, from vegetable oil to fertilizers, livestock feed, fuel additives, and more. Again, the inflation rate on a key input across many industries is 200 percent, not 10 percent.

A Rough Ride Ahead

The near future doesn’t look any better, with 30 percent of farmers saying they still have trouble finding necessary crop inputs for this year’s planting. Those farming input shortages are expected to carry over into 2023.

All this means is that not only will prices continue to rise, but rising fuel prices and food shortages will also likely further drive inflation.

For many Americans, it’s going to be a rough ride.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
James R. Gorrie is the author of “The China Crisis” (Wiley, 2013) and writes on his blog, He is based in Southern California.
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