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