Inflation Numbers Rival Those of 1973: Chris Mayer / June 7, 2007

A natural consequence of creating lots of dollars is that those dollars eventually lose purchasing power. People normally call that inflation. Interest rates also tend to move higher, eventually. This reflects the fact that people will no longer loan dollars without factoring in a little something extra for that inflation.

The market seems to have suddenly figured out that higher inflation is in the works and low interest rates may go away like the dogwood blossoms of spring. At least it would seem so based on the beating the market took over the past two days.

If you read John Williams, the architect behind ShadowStats, this is no surprise. Williams has been writing for months about "a worsening inflationary recession."

"Most of the better indicators continue to confirm a deepening economic contraction," Williams writes in his latest missive. Money supply growth, by his reckoning, recently topped 13%, "rivaling levels seen before the severe 1973/1975 inflationary recession."

A replay of the 1970s bodes well for commodities and tangible things. Not so
good for the dollar or bond investors. — Chris Mayer

• View all of the Crisis & Opportunity Quick Takes >>