When Jamil Kadoura started the Mediterranean Deli in Chapel Hill sixteen years ago, a single piece of pita bread from his wholesale baker cost seven cents. The price has gone up since then, most recently to eleven cents two months ago. Then, two months ago, their baker had bad news. The price for a single pita is now 22 cents. Yes, that's an single increase of 100% for this simple but essential staple. It's not just pita, however: they've also seen abrupt price increases of over 50% for meats, grains, vegetables, and dairy products, as well.

So what does a restaurant do? Can they pass this cost increase onto their customers? They'd prefer not to, but there's only so much a small business can take. They have tried adjusting their menu, but you can't just serve half a pita. Their regular customers show up with exact change for lunch, and it's no fun explaining that lunch is now a dollar more expensive. When customers aren't able to swallow higher prices, business suffers. In that scenario, no one wins.

The bottom line is that price stability is a good thing. Generally speaking, if the money one uses to buy flour maintains its value, the only reason for flour prices to go up or down reflects the supply and demand for the flour itself. But when the money itself becomes less valuable, the changes in price due to supply and demand are magnified by the loss of the money's purchasing power. It's not that the flour is worth more, it's that your dollars buy less flour.

What we're seeing today, and indeed have been seeing over the past several years, reflects this unfortunate reality. Look at your own grocery bill -- it's certainly gone up more than the government's stated rate of approximately 3% "headline" inflation. You see, while globalization has brought us cheap manufactured goods from overseas, it still takes about the same amount of time, water, fertilizer and sunshine to grow wheat, corn, soybeans, and so forth. So when the dollar loses its value, things like food are among the first prices to rise.

It's also worth noting that agriculture requires a lot of fuel -- so as your gas bill has been skyrocketing, so has the cost of running tractors and industrial equipment. We've also diverted a lot of food into fuel through irrational ethanol subsidizes -- perhaps the dumbest and most destructive farm policy ever conceived by well-connected special interests. Finally, globalization has caused a rapidly rising standard of living in populous Asian countries, and their dietary demands are rising with their standard of living. Who has a bigger appetite -- 300 million Americans, or 1.3 billion Chinese?

All of these factors point to a "perfect storm" for rising food prices, even without our dollar becoming less valuable. Adding the Federal Reserve and our government's collusion in creating a lot of new money is the final straw that is breaking the back of working Americans. Not only is our government spending well beyond its means, the Federal Reserve is bailing out Bear Stearns shareholders at a cost of $29 billion. That taxpayer-financed move to prevent bankruptcy allowed Bear Stearns' management to keep billions of dollars in bonuses that had just been paid out in January. Furthermore, these managers went bankrupt taking on too much risk trying to make a buck in a housing bubble that the Fed itself created.

Does asking Americans to pay for that bailout make sense?

No, it doesn't. With respect to our money, the fox is guarding the hen house. The Federal Reserve’s shareholders are its member banks, so it is owned by the banking industry. It is not a part of the federal government. Furthermore, the Federal Reserve also regulates the banking industry.

Why is our Treasury department talking about expanding the role of the Federal Reserve at a time when people like renowned economist Anna Schwartz recognize the Fed caused the current crisis? Why does Congress continue to act as if the Fed is the solution, when it is the problem? Where is Congressman Price's leadership on this issue?

The Fed’s solution may help its member banks (not all banks), but the price for the average citizen will be escalating prices. Fed bailouts must be paid for.

So what is a bailout, anyway? Essentially, the Federal Reserve is using its ability to create money out of thin air. This new money is given to affected banks and investment banks, most recently in the form of “loans” using junk debt as collateral and at giveaway interest rates available to no one else.

If apple growers experience a bumper crop, the increased supply of apples lead to lower prices for consumers. So too, dollar bills cannot escape the law of supply and demand. All the new money the Fed and its banks create increases the supply of dollars in circulation and thus decreases each dollar’s buying power. The result is higher prices, as each dollar purchases fewer goods and services.

Unrestrained money creation may feel good at the moment, particularly for those who get to use that new money before the prices rise to compensate. But this new money raises the risk of loss of confidence in the currency, abroad and at home, as prices continue to rise. Loss of confidence can snowball into runaway inflation, which the nation can ill afford.