Rip Tide

Nothing is planned
By the sea and the sand
--The Who

Common wisdom is that higher commodity prices signal inflation. But what if higher crude et al prices are a late stage symptom of expanding credit? Stock, bond, real estate prices lead as financial institutions have first crack at institutionally (read: Fed) created credit. Only later does that leverage filter into commodity prices and finished goods prices.

Shouldn't higher goods prices slow demand down (ECON 101)? And, if economic activity slows down, what are the consequences in a highly leveraged system?

Given our leveraged situation, higher commodity prices seem more likely to sow seeds of a deflationary (not inflationary) bust.

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