There seem to be plenty of lamebrains that think that the federal government sending out $168 billion in “tax rebate economic stimulus” checks to various people, for no reason at all, is some hot idea that is going to somehow magically save the American economy.

Instead of calling these people names like “moron”, “stupid moron” or “big, dumb, poopie-head moron” like they deserve, I merely motion to Boris Sobolev of ResourceStockGuide.com to tell you that “the worst in the economy is not yet over, especially if one recalls just a couple of important facts from a very long list of economic headwinds: (1) Gasoline and heating oil prices are at their all-time-highs, while (2) household debt is 85% higher than it was in 2001, the year we received our first rebate checks from the government.” Yikes! 85% higher debt in 7 years!

And it is not just energy that is costing more, but Ambrose Evans-Pritchard at Telegraph.co.uk writes that everything is costing more, everywhere, and “Argentina has inflation that is running at about 25pc, even though the official Consumer Price Index (CPI) is 8.9pc”, which is plenty bad enough, but that he goes on “Among the CPI rates – if you believe them – are: Ukraine (30pc), Venezuela (29pc), Vietnam (25pc), Kazakhstan (19pc), Latvia (18pc), Qatar (17pc), Pakistan (17pc), Egypt (16pc), Bulgaria (15pc), Russia (14pc), the Emirates (11pc), Estonia (11pc), Turkey (9.7), Indonesia (9pc), Saudi Arabia (9.6pc), Romania (8.6pc), China (8.5pc) and India (7.6pc).”

I am staggered by all of this inflation, and in desperation I turn to Jeff Rubin of CIBC World Markets, who says that their new report says, “Exploding transport costs may soon remove the single most important brake on inflation over the last decade – wage arbitrage with China”

How “exploding” are these transport costs? Well, the report finds that “the cost of shipping a standard 40-foot container from East Asia to the North American east coast has already tripled since 2000 and will double again as oil prices head towards US$200 per barrel.” Double!

The report notes that “it currently costs US$8,000 to ship a standard 40-foot container from Shanghai to the North American east coast, including in-land transportation. That’s up from just US$3,000 in 2000 when oil was US$20 per barrel. At US$200 per barrel of oil, the cost to ship the same container is likely to reach US $15,000.”

To see how this is reflected in prices, Mr. Rubin says, “To put things in perspective, today’s extra shipping cost from East Asia is the equivalent of imposing a nine per cent tariff on East Asian goods entering North America. And at oil prices at US$200 per barrel, the tariff equivalent rate will rise to 15 per cent.”

I know what you are thinking. You want to know how in the hell you can afford to buy anything if prices are raised another 15% just for transportation costs, and if things are as bad as I say, why aren’t people screaming mad, barricading themselves in their homes, putting “no trespassing” signs all over the yards and buying gold and silver?

Well, as to the first question, I rudely reply that I don’t expect you to buy anything since I can’t afford to buy anything, either, you greedy, self-absorbed little snot; and furthermore I am (now that you mention it) screaming mad; I’m barricaded in my house; there are a zillion “Trespassers will be shot!” signs all over the yard; and I am buying gold and silver with every dime I can steal from my wife’s purse or the kids’ piggy banks.

And some others are apparently catching onto that gold idea, too, as GoldenSextant.com reports that “Another intriguing development of the past few months is the resumed outflow of foreign earmarked gold from the United States. From the end of 2003 through January of this year, there was virtually no change in the total amount of gold held under earmark at the New York Fed for foreign and international accounts, mostly foreign central banks. However, from February through September, the latest month for which figures are available, these accounts are down by a net 169 tonnes, from $8,967 to $8,737 million at $42.22/ounce, or from 6,606 to 6,437 tonnes.”

But excitingly, if you like the idea that there has to be a lot of buying of gold in the future, even as the amount of Federal Reserve gold is going down, that the derivatives industry have made a monster that will devour them, as “The reported figures indicate that the mountain of gold options now almost certainly exceeds 30,000 tonnes – an amount roughly equal to the world’s total claimed official gold reserves.”

So all the gold in the world is owned twice over? Hahaha! I smell a short squeeze a-coming, which will be wonderful for those holding real gold! Whee!

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Source: How to Remain Calm During a Price Explosion

Yesterday, we were full of doubts…

But today, we’re not so sure…

Ah, that’s the trouble with growing older. You lose your dreams and youth. You lose your bearings too. We had lunch in the House of Lords yesterday, with our old friend Lord Rees-Mogg, who turns 80 next month. But more on that in a moment…let’s first turn to the financial news.

Today’s big headline concerns Fed chief Ben Bernanke. According the Financial Times, he broke with long standing tradition in order to express himself on the dollar yesterday. Alas, the fall of the greenback has “contributed to the unwelcome rise in import prices and consumer-price inflation,” he said to an international banker’s forum.

The headman at the Fed may want a stronger dollar…or a weaker one; it’s usually not his place to say so. That’s what the Treasury Secretary is for. Henry Paulson, of course, says the same thing; the United States wants a strong dollar. But nobody believes him. Investors seemed to take Mr. Bernanke more seriously.

Stock market investors sold shares and drove the Dow down 101 points. Over in the oil market, the black goo sank $3.45. And gold, too, was sold on the news…it sank $11 to $885.

But let’s think about this. What could the Fed do to protect the dollar? Easy…it could raise interest rates. But if the Fed wanted to protect the dollar, why has it waited so long? The greenback has lost about half its value since 2000, why didn’t it try to protect it sooner?

Ah, dear reader…the plot has become a bit confused. Let’s see if we can remember it.

In the 15-year period known as the “Great Moderation” central banks could increase their supplies of money 2, 3, 5 times as fast as GDP growth. Normally, this would cause inflation. But it didn’t, because globalized markets…along with a few other key trends…we’re holding consumer prices down. So, the inflationary money went into asset bubbles…dotcoms, houses, and the financial industry.

But after the housing/finance bubble popped last year, consumer prices rose – even while the world economy softened. All of a sudden, the world seemed to be spinning in the wrong direction. Instead of holding down prices in the United States and Europe, China was increasing them. China’s domestic inflation is running at more than 8%. And she’s exporting her inflation to the rest of the world. Import prices from China into the United States are now rising at 4% per year…after falling about 1% each year during most of the 21st century. As for imports from the rest of Asia, they were falling in price as recently as the first half of ‘07. Now, they’re going up by 4.3% per year.

And even as demand for basic commodities slows in the developed world, demand from the emerging markets makes them more expensive. Ai yi yi…globalization is no longer a force for good…but a force for evil! Now, earnings and housing prices fall in the United States, for example – while Americans are forced to compete with Asians for food, fuel and jobs too.

House prices in America are still falling. Foreclosures continue to rise – especially in places such as Las Vegas, which has the distinction of being the “mortgage fraud capital of the world.” And now comes word that people are not only abandoning their houses – but their pets too. Yes, the Society for the Prevention of Cruelty to Animals says that owners are leaving their dogs and cats behind. And pet food banks, operated by the SPCA, are said to have people lined up down the block to get free food for their pets.

Meanwhile, Winnebago says it has had to put its Iowa plant in neutral. The company makes luxury land barges, which have been a big hit with Americans for many years, allowing retirees to take to the open road whenever the mood strikes them. Problem is, motor homes are expensive to buy…and now, with gasoline over $4 a gallon, extremely expensive to operate. In real terms, gasoline is higher than it has ever been in the United States…considerably higher than the $3 it hit (in today’s money) in 1981.

On Wall Street, after Bear Stearns fainted, the other financial firms took smelling salts. But some of them are beginning to look a little woozy, nevertheless. Lehman Bros. is said to be looking for $3 to $4 billion in new capital. The company has nine times as much in level 2 and level 3 assets as it has in tangible equity. And it’s not the worst. Merrill Lynch’s level 2 and level 3 assets equal 2,565% of its tangible equity.

And dear readers, be aware: “There’s another Bear Stearns out there,” say our friends over at The Motley Fool. “You may already own it. And just as with Bear Stearns, chances are you won’t see the collapse coming until it’s too late.”

Colleague Dan Amoss, over at Strategic Short Report, has pinpointed the next Bear Stearns – and warns that there is another credit crisis ready to jam the pipeline.

“Right now,” he tells us, “this company is desperately scrambling to dump more of its weak, illiquid assets…while laying off employees by the thousands…in a desperate bid to ‘fix’ its Wall Street profile, keep its ’shameful secret’ under wraps, and protect its stock.”

But that won’t work, Dan continues. “Buried deep in this firm’s mysterious ‘Level 3′ assets, where banks have regularly hid their riskiest mortgage-backed securities, this one company already has one very large multibillion-dollar real-estate-based asset that – just by itself – could be worth nearly 30% less than it was when this firm bought it.

“When this firm is forced to beef up earnings by selling this one asset, you’re already looking at billions in write-down losses right there. And that’s just where the unraveling begins.”

Of course, we can’t tell you what the name of the firm is here – but Dan will in his new special report…along with advice on how to pile up as much as 200% gains, as this firm pays the piper for its massive mistakes. Clink on the link below:

Money-Tripling Gains on the Next Wave of Wipeouts and Write-downs Ahead

The feds’ response to this situation – so far – has been to cut rates, bail out financial firms, and hand out money (rebate checks). This inflation (along with robust demand from the emerging markets) has made itself felt, mainly, where the feds didn’t want it – in oil, gold and commodity prices.

The consumer price index rose 0.2% in April after edging up 0.3% the month prior, the Labor Department said yesterday (Wednesday). Core prices, which exclude food and energy, rose 0.1%.

Energy prices stagnated after soaring 1.9% in March, but that’s expected to change as both oil and gas have notched a series of record highs this month.

Food prices were perhaps the report’s biggest eye-catcher, climbing 0.9% for the month, the biggest upsurge since January 1990. Fruit and vegetable prices rose 2% and bread prices increased 1.5%, CNNMoney reported. The cost of bread was 14.1% higher than the year-ago period. Milk prices rose 0.9% and are up 13.5% from a year ago.

The Bush administration is currently disputing the International Monetary Fund’s claim that increased production of biofuels is the biggest factor in rising food prices. The IMF estimates that the shift of crops such as corn and soybeans out of the food supply to produce biofuels accounts for almost half of the recent increases in the global food prices.

“Those who are arguing that the president’s increase in the (renewable fuels standard) is contributing to high food prices are incorrect,” Keith Hennessey, director of the National Economic Council, told Reuters.

Instead, the White House is pointing its finger at emerging nations and their growing appetites.

“There are 350 million people in India classified as middle class. That’s bigger than America – and when you start getting wealth, you start demanding better nutrition and better food,” President Bush at a May 2 press conference according to the Economic Times.

Many economists support that position, but Indian authorities took offense.

Food prices have not been rising continually as developing nations grew, Ramgopal Agarwala, a former World Bank economist and senior adviser at RIS, a research institute in New Delhi, told the New York Times.

“They were static until 2006, then in 2007 and 2008 there was a sudden spark,” he said. But India has been growing for the last decade. This is “not last year’s phenomena,” he said.

“I don’t know who advised the president” on his recent comments, Mr. Agarwala added, but his analysis is “subprime.”

The administration – and many agricultural lobbies – have embraced biofuels as an alternative to foreign oil, and contend that ethanol use accounts for only up to 3% of the overall increase in global food prices.

Others, including the American Farm Bureau Federation, believe that it accounts for up to 30% of the surge.

On average, food prices increase about 2.5% each year. This year, according to federal data, the overall cost of food is predicted to jump 3% to 4%.

Source: Consumer Prices Moderate in April but Soaring Food Prices Steal the Show 

But a far simpler truth often gets lost in all the noise. We’re feeling poorer because we are poorer. And we’re poorer because the things we import — like food and oil — are getting much more expensive.

Oil sets a new record high practically every week these days. Last Friday it breached the $126 mark. It’s since fallen slightly, but Garry White explains below why those taking profits now are making a mistake.

High oil prices are damaging the British economy. They push up the price not just of petrol, but of heating, lighting, and any goods that have to be moved from one place to another. That’s pretty much everything you buy.

This inflationary effect is something that Bank of England Governor Mervyn King knows only too well.

Big Merv is stocking up on writing paper and feather quills. Why? Because Consumer Price Index (CPI) inflation for April was at 3.0%. A whisker higher and Merv will have to explain himself in an open letter to the Chancellor, just like he had to in March last year.

And there are signs that inflation will rise. Factory-gate inflation was 7.5% last month. This is yet to feed into the main, targeted figure.

The latest data are a blow to all those hoping for an interest rate cut in June. But it’s doubtful a cut would do much good anyway. It might temporarily mask Britain’s fundamental problem. But it won’t solve it. In fact, cutting rates will weaken the pound, making imports even more expensive.

That problem is that we must now pay more for our basic necessities. Oil is one of those. In real terms, we’re worse off. On the other side of the trade, oil-rich countries are better-off. Britain’s wealth is flowing abroad.

So what can you do about it? The answer is to divert some of that wealth back into your own pocket. There are several ways you can do this. We’ll be taking a look at some in the days and weeks ahead.

For today, I recommend you take a look at Garry’s Smart Commodities piece. With oil more valuable than at any time in history, Garry believes oil-exposure is a must for all investors.

High oil prices will continue to hit you in the pocket. But you can use oil profits to soften the blow.

NOT made in China

For years the west has spent a fortune on manufactured goods that are ‘Made in China’. But where do the Chinese turn when they themselves crave cheap manufactures?

Emerging markets expert Manraaj Singh believes he’s found the answer.

“Earlier in the decade was a great time to put your money in China,” he says. “We in the west couldn’t get enough of Chinese products.”

Thanks largely to this export market, China boomed. And China is still booming.

“China’s still a great place to put your money,” says Manraaj. “But I’ve found somewhere even better. A country where even Chinese manufacturers are setting up shop — because it’s just so cheap!”

Is this country about to take-off China-style? Manraaj reckons so — in fact, he says this investment is even better than China!

“Taking oil profits now is a huge mistake!”

“These oil traders must think China’s growth story is over!” says commodities guru Garry White.

The price of oil dipped by $2 yesterday, to around $123 a barrel. This was in part caused by China importing less oil last month than it had in April 2007.

But a quick look at the facts, says Garry, tells us why this is a temporary blip.

“A slight fall after a massive jump is not the same as a new trend,” he says. “Taking oil profits now is a huge mistake!”

Rising oil prices push up everything from heating bills to grocery prices. So what better way to hedge against this inflation than by investing in the stuff itself?

Find out which investment Garry believes is the very best way to play oil right now…

Until tomorrow,

Ben Traynor