I thought Rich explained it very well so I will try to augment his theory..
3. As a result of foreign currency pegs, QE here leads to looser monetary policy and thus higher demand in foreign countries. This leads to increased competition for commodities and many other items that could feed into our own domestic prices, regardless of our unemployment rate.
**This one hurts. China and the USA want to buy some oil. China has a huge appetite for oil right now and is holding treasuries and getting paid in dollars which are continuing to depreciate. China will pay more for the oil and thus we will be forced to as well. They have a ton of useless dollars and would rather get something for them now, then less of something for them later when they are more useless.
4. If #3 gets bad enough, foreign countries could let their currencies rise, which would lead to an increase in prices of items we import.
**We already have problems with the way China pegs their currency. As #3 above happens this will only get worse. Other countries will follow suit.
5. Commodity prices in specific could increase due to #1 (more money flowing into risk assets) or #3 (higher demand in foreign countries). They could also rise as foreign countries try to redeploy their excess dollar reserves. Commodity price increases do feed into inflation over time.
**My example above was only for oil however many people do not have a clue about how much we actually import. We import everything from oil to drywall to metal screws. You guys think Walmarts are Targets are the only big imports? Go to your Home Depot or Lowes as well. The issue at hand is commodities are the root of everything. As commodity prices rise everything follows suit. It takes time but it happens.
**Honestly I think the bigger issue at hand over the misunderstanding is the lack of the experience. If you are under 40 you have no clue of this sort of stuff. You were a child at best in the late 70s and early 80s and you didn’t see it. You don’t know what a gas line is, you didn’t witness any of this stuff so it is surreal to you. Asking me for a concrete example of how prices go up when it has been explained seems to validate that. If your costs have only gone up 1 or 2% this year then that is what it is, mine have gone up more. This stuff doesnt take 1 year to happen. It happens over a decade. Believe me we are just barely starting the cycle.
