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<p>[QUOTE=&quot;Bluesboy65, post: 1095864, member: 23329&quot;]It is common for people to confuse inflation and price inflation.&nbsp; Very simply, inflation is the increase in money supply (this measure is something very few people are even cognizant of).&nbsp; Price inflation is what 10gary22 is referring to and what everyone feels as prices rise; this is what people refer to as &quot;inflation&quot;.&nbsp; Inflation can be created by literally printing money (at a rate greater than real growth in the economy) or by foreign governments (who actually begin to spend the dollars they have been paid as the US services US Treasury debt) as they begin to use their dollars to purchase goods.&nbsp; Relatively more dollars chasing relatively fewer goods creates price inflation.</p><p><br /></p><p>Sooo, technically I agree that rising oil prices are not inflationary (in that they are not the cause of inflation).&nbsp; However, I think to say that the &quot;Fed&#039;s reaction to oil prices that determines inflation&quot; (paraphrased) is putting the cart before the horse.</p><p><br /></p><p>Let&#039;s talk about deflation.&nbsp; Deflation occurs as the money supply shrinks.&nbsp; Price deflation occurs as fewer dollars are available to purchase goods.&nbsp; In a deflationary spiral like we saw in the great depression, money was destroyed as the stock market crashed, unemployment rose and there was not enough money supply (M1) in the banks to cover deposits.&nbsp; As money evaporated from the economy, the velocity of money and the price of goods and services fell.&nbsp; In expectation of ever-falling prices, people withheld purchasing decisions until the last minute to preserve scarce dollars.&nbsp; This is the economic depressionary death spiral.</p><p><br /></p><p>So wrapping up, a commodity like oil can rise because it becomes more scarce or because money becomes worth less.&nbsp; In either case higher input costs (from the standpoint of a manufacturer) of commodities like oil, cotton, sugar etc. put inflationary pressure on prices.&nbsp; In an inflationary environment I want to be holding silver &amp; gold.&nbsp; In a deflationary environment I want to get out of silver and gold and get into cash.</p><p><br /></p><p>Regards,</p><p><br /></p><p>Bluesboy65[/QUOTE]</p><p><br /></p>

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