Grandinite

This explains soaring commodity prices quite well.

Greg Mankiw: Real Interest Rates Are Now Negative

Market Oracle:

Real interest rates represent the true price of the most important “commodity” of all: Money.

Here’s the scoop in a nutshell …

* When real interest rates are high, money is expensive. If it persists, the days of inflation are numbered.
* When real interest rates are low, money is cheap. And with cheap money chasing scarce goods, inflation is bound to continue.
* Worse, when real interest rates are zero , money is not just cheap, it’s effectively free. And free money chasing scarce goods puts inflation into overdrive.
* Worst of all, when real interest rates are below zero , money is not just free — but borrowers are, in effect, actually getting paid to take the money. And it’s the abundance of this kind of highest-octave money that is the ultimate prelude to double-digit inflation.

That’s what we have today: The Fed has dropped the fed funds rate to 2%. But the CPI inflation, even with all its distortions, is now close to 4%. So the real interest rate is …

2% minus 4% = 2% below zero!