The economy of the late 1970s was facing double digit inflation. In the late 1970s the Federal Reserve, under the leadership of Chairman Volcker decided to greatly increase the federal funds rate to reduce inflation in the economy. Volcker succeeded in controlling inflation but also caused a significant recession at the same time.

The evidence is that the opposite is occurring right now. We know the following to be true:

• Fed Chairman Ben Bernanke order the federal funds rate to be cut several times
• This has deflated the dollar significantly by making savings bonds less desirable.
• This had led to much higher import costs, including energy.
• The economy has been mildly stimulated by lower credit costs and increased exports.
• Inflation is now causing problems for our economy.

Most of the inflation is currently being seen in the fuel and food sectors, that both depend highly on cheap imported oil. Oil has increased in price largely due to the lower value of the US dollar, which has meant that it takes more currency to buy the same amount of products.

Inflation would be much worst if it was not for China and other third-world countries not raising their price to adjust for inflation. Third world countries are able to absorb some of the impact of the devalued dollar by increases in worker productivity and keeping workers working with low pay and little benefit.

Ultimately, the third world can't stop inflation on their products. They are effected by higher oil prices, even if their currencies are not directly demarcated in dollars. The third world can only trim the prices so much in their manufacturing, and the cost of hauling goods is way up in our country. Oil prices are still low enough that they have minimal effect on the entire cost of the product, but that may too be changing.