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The Price at the Pump

There is no doubt that many of you have had to go to the gas station and fill up your vehicle in the past week. For most people, the cost of getting to work, traveling or shuffling to kids to-and-from school and other activities, has become a drain on your checking account. An overwhelming percentage of you have cable, DirecTV or another provider of mass-media. Although I don’t subscribe to these outlets, even I have been bombarded by the reasoning for these costs. From what has been conveyed to me, the reasoning relates to two theories: the situation in the Middle East and the access to oil and gas (etc.). While these two issues are tied to the prices we are seeing, there are other forces at work. The major media outlets are largely keeping quiet about the silent killer of economies throughout history… devaluation of currency through inflation.

Inflation defined: In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.[1] When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy.[2][3] A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.[4], according to Wikipedia.

If you are a person that keeps up with the numbers that are being fed to us, the inflation rate is stated as a 2% increase. It is important to note that this rate does not include the increase in price of transportation and consumer goods. A more accurate number seems to be a 9% increase. Almost all of you have noticed that your earnings haven’t kept up with the increased price at the pump. What can’t be easily correlated, is the increased price of groceries to gas prices. Some of you have been to the grocery store and noticed the increasing cost of providing quality and quantity to feed your family (or yourself). This is a good example of why I would make the case that gas prices are not the sole driving force of cost in all areas.

If you look at the chart below (there is a correlation between barrels of oil and gas prices), it can be inferred that the price of oil relates fairly directly to the gas prices we pay. It causes many to question the specultion of oil, and how it relates to prices at the pump. Speculation, in and of itself, is not wrong; it means that investors are taking note of potential supply and demand issues and investing to make a profit. Although we know that gas prices do effect the cost of putting food on the table, due to the cost of transportation; there has been a disconnect for a while in that relationship.

The prices for consumer goods is not universal. Technology-based goods are getting cheaper, meanwhile groceries have increased in price for a while now. The decreasing cost of technology would suggest that inflation is not an issue, but technology seemingly escaping the rate of inflation is not a leading indicator. It is coincidental… and, since most of our technology is now produced overseas; they can be sold at lower prices. If you consider that they rate of technolgy is incredible (it doubles, ie. video game systems… 8, 16, 32, 64, 128 & 256 bit systems), you can see why it is not viable in considering inflation.

What needs to be recognized, is hidden inflation: Price increase implemented by offering a smaller quantity or poorer quality for the old price, according to Answers.com. What this means to you, (the consumer) is that the same groceries you purchase today are either sold with inferior ingredients in them or they come in smaller quantities. Basically, the beef sold is a lower quality (diluted verion from different parts of the cow) and the 12 ounce bag of candy is sold for the same price as the 18 ounce bag was previously. It is important to note that this process is often slower and less obvious than seeing signs for $3.79 gallons of gas on day, and $3.83 next day.

Perhaps the reason that this subject is portrayed like it is, is because it relates to the Stimulus bills, the massive printing of money and the Fed. Throughout human history, no paper form of money has stood the test of time. Unfortunately, in 1913 the Fed was created, and this entity is controlled by people that do not feel that just weights and measures are relevant to our modern society.

Above, I have a chart relating oil and gas prices. I’ve also included two videos regarding how the devaluation of the dollar relates to oil, gas and precious commodities, such as gold and silver. The chart can be better understood if you click the ‘6 Year’ model and then check the box below, called ‘Show Crude Oil Price’.

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