Saturday, November 03, 2007

INFLATION or HYPERINFLATION

It seems the masses still believe our skewed government inflation statistics. Yes the stats that regularly get spouted by the babbling heads in the media… Sure, these same folks end up scratching their heads while paying higher prices for nearly everything, but why should they doubt what the government and the boobs on TV have brainwashed them to believe? Certainly, the government is looking out for our best interests—Right…?

ABSOLUTELY WRONG!

The government knows that most believe their blatant lies, therefore (in a futile attempt to manipulate the system ever more--to keep the banking/financial systems from collapsing) they continue to press the limits of common sense and their lies become ever more egregious. Eventually, (and it’s not too far off now) the masses will finally wake up and realize that they have been duped. By that time however, inflation will have eaten them alive.

So what is inflation? Nearly everyone understands that inflation is an increase in the price of goods and services, but what actually causes these increases? Well, those who follow the government’s skewed doctrine falsely believe that inflation is caused by higher wages, which in-turn causes more people with extra money to chase the same number of tangible goods--driving up prices. In reality though, inflation is actually caused by excess growth of the money supply, without a commensurate increase in the supply of goods and services.

OK, so what does that really mean? Well, the powers that be have absolute control of something called a “printing press” and they use it to create money (backed by nothing) at ever increasing rates. They inject this money into the banking systems and economy to keep inflation going, because if they stop doing so, deflation will set in—which can lead to an Economic Depression.

The problem right now is: The largest speculative bubble in our world’s history is beginning to deflate (Housing Bubble) and its reverberations are being felt across the entire globe: Hedge funds are collapsing, bank write-downs are massive, toxic waste marked-to-model Commercial Paper (CP) sitting in off-balance sheets cannot be offloaded (and will soon have to be accounted for), credit markets are drying up, and home foreclosures (the catalyst to all these problems) are just now getting started. (See Mortgage Rate Reset Chart Below—The resets have merely begun ):



The Fed and US banking systems understand that deflation is setting in and are now operating in crisis mode... In a brazen attempt to prevent a collapse of the entire banking/financial systems (and hence the US Economy) “Helicopter” Ben Bernanke (under severe pressure from Treasury Secretary Henry Paulson and the many heads of leading financial institutions) has sacrificed the dollar in the hopes of printing/inflating our way out of this mess.

What do you mean he sacrificed the dollar? Well, by virtue of the Fed lowering short-term rates and printing/injecting money at the fastest rates ever seen in history, foreign holders of US dollars (now holding over $4.4 Trillion in US Government Debt) understand that the inflation tide is coming in; they know they can make better returns on their savings elsewhere, and therefore they have started to offload their massive dollar holdings.

Additionally, for decades now, many foreign countries have pegged their currencies to the US Dollar, but recent inflation increases, internal to their domestic economies, is becoming far too severe for them to handle (with the dollar peg, they have to print money as fast as we do, and it is stoking inflation), therefore several countries have started a new trend of depegging. Recently, Vietnam, Qatar and Kuwait have depegged, while a host of others are in line to do the same. When this depeg happens on a larger scale (not if, but when) inflation within our borders will SCREAM. Why? Well, as they de-link from the dollar, their currencies become stronger causing our import costs to increase Commensurately (e.g. Oil, consumer goods, etc).

BOTTOM LINE: To prevent deflation, the US Fed is creating inflation at the fastest pace in history and the dollar gig is nearly up! See chart of M3 Money Supply Growth below (Recreated by Shadow Government Statistics): M3 is growing by >15%



Additionally, take a look at the US Dollar Index (below). NEVER before in our country’s history has the dollar been weaker—and it’s only going to get worse as this banking crisis evolves and the inflationary escape mechanisms (printing presses/monetary injection) are blatantly overused, while at the same time a greater number of countries de-peg their currencies from the Dollar.


Recent data from the Bureau of Labor Statistics suggests that current inflation in the US is running at modest annual rate of 3.6%.

“ Consumer prices increased at a seasonally adjusted annual rate (SAAR) of 1.0 percent in the third quarter of 2007, following increases in the first and second quarters at annual rates of 4.7 and 5.2 percent, respectively. This brings the year-to-date annual rate to 3.6 percent and compares with an increase of 2.5 percent for all of 2006.”

Maybe it’s just me, but my Seat Of the Pants Inflation-o-Meter (SOPIM) and my empty wallet are both telling me that inflation is running at a much, much higher rate than that... I’m now paying $3 a gallon for gas and $3.50 for a gallon of milk; my electric rates were jacked up twice last year; car insurance premiums were increased; It cost me over $40 bucks just to take my kid bowling the other day; hell, it now costs $10 a person to see a movie—forget about popcorn and a soda.

So, why does there seem to be a disparity between my SOPIM and Government provided statistics? BECAUSE THERE IS A DISPARITY AND THE GOVERNMENT NUMBERS ARE ABSOLUTE BALONEY!

Take a look at the Consumer Inflation graph below. The red line depicts the inflation statistic our government officials want you to believe (inflation is moderate)… They calculate this rate by excluding many food and energy products, by using rent vs. mortgage costs and by using substitution methods (e.g. steak prices showed a spike this quarter so we’ll substitute our calculations with the price of hamburger) and Hedonic Adjustment Methods (e.g. a computer has twice the processing power of the previous model but at the same cost—therefore cost has been reduced 50%)—Bottom line to these red numbers: It’s all a Con Job!

With all that said, now take a look at the blue line in the same graph. This line accurately illustrates our real rate of inflation in the US and is calculated by using the same metrics that were used prior to a change of rules that took place just before the Clinton administration took office. As you can clearly see, today's inflation rate is actually running at >10%… Now that seems to be more in line with my SOPIM.

So, why does the Government lie about Inflation? Well, by virtue of using this fictitious inflation number in a myriad of annual government calculations, the government can reduce the cost of obligations and entitlements programs (e.g. Social Security and other Government employee cost of living increases {think military and civil servants here}, Medicare payments, welfare increases, etc), as each program receives an annual COL increase based on the reported inflation index.

Additionally, these bogus lower inflation numbers are also used to make Gross Domestic Product (Economic Growth of the Country) look much better than it really is... If the higher (actual inflation) number were to be used, GDP would be abysmal (See blue line in the GDP chart below—this line illustrates actual GDP based on the true >10% rate of inflation). WE Have Negative Growth my Friends!


So, what if, after reading this long explanation, you're still having a hard time believing that the government would lie about inflation numbers? Ok, that’s completely understandable, as we’ve all been programmed to think a certain way for far too many years to change on a dime… So, lets look at it another way.

Why did the price of gold reach a 28-year high last Friday (closed at $806 oz)? Well, the reasons are: Gold is SCREAMING to us that the Fed will continue to try and inflate our way out of this banking/financial market crisis and will do anything to prevent deflation—including hyperinflation. Gold is telling us that smart money is seeking safety as the dollar is thrown off a cliff. Gold is telling us, all is NOT WELL in the economy and your savings will soon be eaten alive by inflation. Gold is telling us that people are scared. Gold is saying, batten down the hatches cause a trainwreck is unavoidable!


I know it’s hard for people (who have been conditioned to believe in the everlasting greatness of our country) to think or believe that things could spiral out of control, but they can. Never in the history of the world has a fiat based economy lasted beyond a few decades. Since 1971, when the dollar was pulled off the gold standard, the dollar has been 100% fiat—a currency based on nothing but a promise--a promise that cannot be kept.

Bottom Line: There are no set limits, no regulation controls, and there is absolutely no one holding public office who can tell the Federal Reserve Banking System (a group of Private bankers who control the nations currency) how much money they can or cannot create. The Fed has complete control of our monetary system and they will do anything they can to prevent the massive banking crisis/financial storm they see on the horizon. Problem is: Short-term rates, Printing presses and liquidity are their only options.

Hyperinflation here we come!



Peter Schiff video on declining dollar, purchasing power, credit problems, etc: LINK

A Closing Funny



Regards
Randy

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12 Comments:

At 11/04/2007 6:42 AM, Anonymous Anonymous said...

what can we do to protect ourslves

 
At 11/04/2007 8:17 AM, Blogger contrarian2day said...

I'm not going to provide anyone with specific financial advice, but will provide some personal opinions.

1st-Layoffs are just starting to gain momentum and will be significantly increasing over the next 24 months. Prepare yourself for this and get out of debt if you can.

2nd-I personally believe the stock market will soon wake up to the issues at hand and we'll see a significant correction. The Plunge Protection Team (google these words) has been working overtime to keep some sort of lid on daily damage--reasons for the massive volitility as of late. Be very conservative here. Look at your 401K's and get out of anything too aggressive. Financials and housing sectors, though low today, will probably get much worse. International plays will probably hold up better than domestic when the SHTF.

3rd-If you have any significant savings, diversify out of the dollar (gold, silver, foreign currencies, hard currency funds, international plays, etc should help you maintain purchasing power)

4th-Many feel that commodities and energy will be the next wave up and I concur.

Thanks for stopping in for a read.
Good luck!

 
At 11/07/2007 8:41 AM, Anonymous Anonymous said...

China today said they are going to diversify out of US Dollars. The dollar is getting killed!

 
At 11/07/2007 8:46 PM, Blogger contrarian2day said...

Saw that this AM. Pretty scary indeed. Gold rose to over $840 before market OPEN. After that however, Stock markets tanked, the dollar recovered a bit and gold lost a few bucks from open price.

So, Why did the markets tank?

Aside from the massive GM writedown($39B), I have to say the bigger (unspoken) news was the report of September Consumer Credit.
Nov 07 Consumer Credit Sep $3.7B

Sept CONSUMER CREDIT: a mere $3.7 Billion increase in Sept--Abysmal--Lowest reading of the year!! (THE CREDIT MARKETS ARE TIGHT, PEOPLE ARE ALREADY STRAPPED, CREDIT STANDARDS ARE TIGHTENING AND CONSUMERS ARE STARTING TO PULL BACK). This $3.7B increase compares to a $10B average per month over the last 12 months.
and a $15.4B last report.

Bottom Line: CREDIT MARKET IS DEAD and the Fed is pushing on a string. This could have the makings of the Worst financial crisis in over 80 years!!

 
At 11/13/2007 1:49 PM, Anonymous jim forest jimaxforest@yahoo.com said...

Remember Randy, the 4Gs

God,Guns,Gold,Grub

Jim Forest

Drop me a line

 
At 11/29/2007 10:28 PM, Anonymous Anonymous said...

I got out of dollars on Dec 20 06, Got Icelandic Krona, 90 day CDs pay 11.5% interest-- Got these at Everbank.com

 
At 12/28/2007 2:25 PM, Anonymous Anonymous said...

Lots of truth is presented in your article. The main problem is that the millions of brainwashed and financially distorted US citizens will not "connect the dots" in time to understand that the US dollar will loose most of its purchasing power (become almost worthless) in a short period of time.

The surest way for anyone to financially protect themselves and their families is to purchase physical gold and silver during the coming long economic crisis.

It is your decision. Keep listening to the distorted BS coming from the Gov or the corporate owned media outlets and let the wall street theives rob you blind, so that they can afford to pay the millions needed for their criminal legal defense, and do nothing.

OR...
Take action to protect yourself by converting some of your paper assets to real precious metals. Precious metals have always been the ultimate wealth insurance policy of the very wealthy. In times of hyperinflation, these metals will proportionately hyperinflate more than everything else, thus protecting your wealth and purchasing power.

Don't believe me? Then ask yourself why you haven't heard from CNBC or your professional financial advisor, that the precious metals sector have outperformed the DOW and other major indices's for the last 6 years in a row.

The hyperinflation tsunami is already in motion and heading straight at the US. On the US coastline, the water is being sucked away into the growing hyperinflation tsunami wave. Most people will just watch the strange phenomena till it is too late to head for safety. Some will recognize what is coming and head for safety.

Which will you be?

 
At 1/01/2008 3:26 PM, Anonymous Anonymous said...

This is the government that promised to help New Orleans after Katrina; the bunch who decided to invade Iraq and create an utopian democracy. Whether it is incompetency, or malicious private interests driving the USA, the result is the same to us in the middle class: prepare for hyperinflation with high unemployment and falling prices of some merchandise from places like China.

 
At 4/30/2008 7:34 PM, Blogger Rishi said...

what you have here is a true economist.

i say this because he has taken valid information and subjectively used parts of it to construct his twisted argument and build support.

The government does not continuously inflate the dollar to screw us. Ever heard of contractionary policy? Our GDP is growing.

The US dollar is weak in the FX market. This is cyclical. It will be back.

When you talk about money, dont just reference M3. Talk about M1.

You're relying on the assumption that your readers will skip over these small details and accept your facts at face value. hm...sound familiar?

 
At 4/30/2008 8:21 PM, Blogger Randy said...

rishi,

GDP is growing? Did you even read/comprehend the article?

By understating Inflation, GDP is overstated -- we have NEGATIVE Growth...

They are NOT killing the dollar to "screw us". They are sacrificing the dollar because it is the ONLY escape valve available to solve our banking/credit crisis and to fund our (currently)unfunded liabilities.

M1: is defined as all coins and currency held by the public including travellers cheques, checking account balances, NOW accounts, ATS accounts and balances in credit unions.

M1 has remained in a tight range for the past 11 Quarters, but the sudden acceleration in M2 and M3 points to a reflation BEYOND cash... To include overnight repos at banks.

Since the credit crisis burst open in the summer of '07, the Fed has made ample use of repos. Indeed when the crisis intensified in October '07 and again in January '08 the Fed enlarged the amounts and frequency of repo arrangements... This is reflected in M3.

 
At 5/28/2009 6:17 PM, Blogger RetWallExpert said...

GREAT ARTICLE AND INFORMATION - thank you! I understand how renters could have their rent jacked up from say $500 a month to $5000 a month, with the landlord citing "unseen circumstances", but could this happen to someone like ME, just a guy with a normal, fixed-rate, 30-year mortgage? Or, would I be "sitting pretty", paying off my mortgage with crappy, worthless dollars? What do you think?

 
At 1/14/2013 5:22 PM, Anonymous QUALITY STOCKS UNDER 5 DOLLARS said...

One thing it will not be deflation.

 

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