I majored in economics because I thought it was a fascinating subject. Years ago (circa 2003) I was taking an economics class at Strayer University and handed in a paper explaining that our economy was seriously threatened by energy-based inflation. Up until this point in my education, I had received an A on every test and every paper, but this paper on energy-based inflation would the first B grade I received on any economic paper. The professor even mentioned that he was going to give me a C but that I had worded my argument so well that I deserved a B.

His argument was that energy prices generally remain stable and that companies will compensate for any prolonged increase in energy prices. Failing to see the long-term trend towards higher energy consumption was my professor’s largest mistake in the analysis of my paper. He also failed to understand the world demand on supplies of energy. So, alas, I get to say I told you so! ūüėÄ

I’ve written a brief explanation of energy-based inflation on Words Cause. The idea is pretty simple. Energy is required at every stage of a product or service, which means that a sustained and rapid increase in the price of energy would severely damage the US economy. Over the last several years, my theory has essentially proven itself to be
correct. Energy prices continue to rise, causing inflationary pressures that the Federal Reserve is powerless to affect.

I’ll digress for a moment to cover the trash talking that politicians like Ron Paul have been spewing forth about the Federal Reserve. Ron Paul has no understanding of monetary policy and is exactly the political reason that the Federal Reserve is in place. Monetary policy should not be governed by the winds of politics.

Meanwhile, back to energy-based inflation… The Federal Reserve can’t do anything about energy-based inflation. Contracting the money supply will only choke the economy (which is what we’ve seen over the last 2 years since Bernanke has been Fed Chairman). Increasing the money supply will quickly be absorbed by a rapid increase in the price of energy (resulting in ripple inflation). Watch what happens with the recent decrease in interest rates.

So what would be the solution? I’ll outline my solution later this week on Words Cause.

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  1. Lisa Bennett

    Sorry, but the Federal Reserve is an unconstitutional Central Bank… clearly forbidden in the Constitution. It has done nothing but weaken the dollar since it is was underhandedly snuck through Congress. And all these housing crises and what-not are a result of their shortsightedness and manipulation of the money supply. Thank God there is someone like Ron Paul to remind us of our founding governing document.
    Kill the banks!

  2. Lisa: You do realize that the same guy who wrote our Constitution is the guy who developed the first central bank, right? And that the constitution does allow for Congress to write laws. That’s an important one!

    Thank God there is someone like Ron Paul to get people to talk about these important topics so that we can realize that he is completely wrong about monetary policy!

  1. 1 Our Recession Started in Late 2007 « Opportunity Knocks My Head

    […] of energy would send the US Economy into an unprecedented type of economic turmoil. I called it Energy Based Inflation in my paper, and subsequently received my first B on a term paper in […]

  2. 2 Energy Crisis Solved? « Feed My Blog

    […] Spend another $700 billion dollars to install the $21,600 systems on homes in America. Now, the first argument might be that we need to evaluate whether there is enough sun coming in to make this worthwhile. Well, good news, someone has already done that! There is plenty of sun hitting the majority of the United States to make this worthwhile. […]




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