Monday, August 9, 2010

The Deflation Myth Is An Excuse To Hyperinflate

I must apologize for being derelict in my posts of late. I have been on a whirlwind the past two weeks, and unable to focus on the precious Metals markets in the way that I like to. Though in touch with them, it has been refreshing to get away from them at the same time.

I haven't missed much. Gold remains capped at 1200 and Silver at 18.50. My hunch is that this is being done in anticipation of the Feds QEII announcements soon, in an effort to put to rest the Nation's and the World's Fear Of Deflation. Gold and Silver should soar once this action becomes official, so retarding the rise in the Precious Metals during this "speculative phase" prior to a new round of quantitative easing only makes sense, in an Orwellian kinda way.

I remained awed by the fact that Silver is 70% below it's 1980 high of $50 an ounce. This remains the single best asset value on the planet today. The pending run-up in the price of Silver is going to be beyond breath taking. Sit tight on this rocket ship. Gold is building for an explosive move towards 1400-1500 this Fall. If you doubt this, why are you reading my drivel?

Today, once again we see Gold halted at it's 50 day moving average, and being pushed back under 1200 by the nefarious not for profit sellers at the bullion banks. This criminal activity, sanctioned by the ever inept and complicit CFTC, is fruitless, and will only add fuel to the engines once this rocket roars to life. Too think that a lower Gold price is going to stifle demand in this financial environment is ludicrous.

I would not be surprised to see Gold pushed down to the vicinity of it's rising 100 day moving average near 1190 before liftoff. The Fed meets to decide on the fate of the US Dollar via new quantitative easing programs tomorrow. Gold will certainly be held in check until that meeting has ended.

Mid-August is usually when Gold turns higher into the Fall. This year should be no different, and most likely more prolific.

Be right, and sit tight people...our patience with the Precious Metals is about to be rewarded, and all will be encouraged to gloat as the US Dollar sinks into the abyss.

Now that nearly everything is not getting worse fast, the Obamagasm's team of Orwellian nincompoops have been running around the country the past three months telling anybody that will listen that "the economic recovery has begun", and the anointed one's $900 BILLION stimulus package has been a resounding success. NOTHING could be further from the truth.

Do these clowns, with zero practical business experience, really believe that if they simply run around the country telling people the economy is recovering, that it actually will? It's not, and it won't soon be either.

Welcome to the Recovery
THE devastation wrought by the great recession is still all too real for millions of Americans who lost their jobs, businesses and homes. The scars of the crisis are fresh, and every new economic report brings another wave of anxiety. That uncertainty is understandable, but a review of recent data on the American economy shows that we are on a path back to growth.
The recession that began in late 2007 was extraordinarily severe, but the actions we took at its height to stimulate the economy helped arrest the freefall, preventing an even deeper collapse and putting the economy on the road to recovery.

From the start, President Obama made clear that recovery from a crisis of this magnitude would not come quickly and that the recovery would not follow a straight line. We saw that this past spring, when the European fiscal crisis posed a serious challenge to the markets and to business confidence, dampening investment and the rate of growth here.

While the economy has a long way to go before reaching its full potential, last week’s data on economic growth show that large parts of the private sector continue to strengthen. Business investment and consumption — the two keys to private demand — are getting stronger, better than last year and better than last quarter. Uncertainty is still inhibiting investment, but business capital spending increased at a solid annual rate of about 17 percent.

Together, private consumption and fixed investment contributed about 3.25 percent to growth. Even the surge in imports, which lowered the rate of increase of G.D.P., actually reflects healthy and growing American demand.

Read the entire op-ed here:

What a load of rubbish from our Treasury Secretary and admitted Tax Cheat. This individual should be flogged and left in stocks on the Washington Monument lawn to be ridiculed for his blatant lies and disservice to our country.

The biggest truth about our economy is that it is a lie. Growth in this country is measured in Dollars spent, not in volume of goods sold. If prices of goods continually rise, then Dollars spent to buy the same goods must rise also. More Dollars spent gives the "illusion" of growth.

For example: Car Company A sold one million cars last year at $10,000 per car for $10 BILLION. This year they sold one million cars at $10,500 for $10.5 BILLION. Car Company A had a 5% "growth in sales" in Dollars, but did not sell one single car more this year than last. Car Company A's "sales growth" was therefore purely the result of a "rise in the cost" of a car, and not a rise in the number of cars sold.

This is a crudely simple example of the fallacy of growth we have come to take for granted in our economy. The only thing really growing in our economy is the money supply...and the largest percentage of that is related to a growth in debt, as all money is technically debt.

This is why "the fear of deflation" has begun to dominate the financial headlines the past several weeks. This is why the fear of deflation supposedly threatens our [nonexistent] recovery. How can economic growth that is the result of rising prices continue to grow if prices are falling? Exactly! And that is the truth about our economy...IT IS A LIE!

We don't have an economy. What we consider our economy is really a central bank increasing the money supply regularly to force prices higher and give the ILLUSION of growth. Our economy is in fact the greatest robbery in the history of mankind. For proof of that look no further than the rise in consumer prices versus that of consumer wages. For a real eye opener, consider that housing prices between 2001 and 2007 rose 100% but real wages ONLY rose 2%. And people wonder what has caused our financial crisis?

On what is this "fear of deflation" based? The CPI has fallen for three straight months, April - June. OH, HEAVENS! The government rigged CPI, that excludes the costs of food and energy that none of ever uses, has fallen for three straight months! Is the sky going to fall next? Has it gotten cheaper for you to live each month dear reader? I know my wallet has not gotten any fatter the last three months. Seriously, think about this. The ONLY thing that has fallen in price, or is falling in price is real estate...both residential AND commercial.

As Consumer Price Index falls for third month, deflation risk emerges
Deflation remains a threat for the struggling US economy, despite massive efforts by the Federal Reserve over the past two years to mitigate that risk.

That's the message coming from the Consumer Price Index (CPI), which posted a decline in June for the third straight month, according to a Labor Department report released Friday.

The price index declined 0.1 percent last month, following a 0.2 percent fall in May and a 0.1 percent drop in April.

The index, designed as an overall gauge of price pressures from the grocery store to college tuition, is still higher than it was a year ago. But the recent trend suggests that the Fed hasn't completely removed deflation risks.

The news comes as other indicators also point to weakness in the economy's nascent recovery. An index of consumer sentiment, released by Reuters and the University of Michigan Friday, took a 9.5-point dive in a preliminary July reading to 66.5, the lowest reading for that index in nearly a year.

Although consumers don't generally complain if prices at the supermarket or gas pump go down, deflation can be a serious problem if it the pattern becomes persistent. In that case, it's just about the worst enemy of economic recovery. It can mean that consumers and businesses delay key purchases (expecting prices to fall further), wages face downward pressure, and debts become harder to repay.

"Once again the rate of inflation is getting too close to deflationary territory, something the Federal Reserve is not thrilled about after doing so much to prevent deflation," economists Eugenio Alemán and Sam Bullard of Wells Fargo Securities wrote in an analysis of the new numbers.

Others in the deflation camp will point towards "debt destruction" as a sign of deflation. HUH?! Sure there has been some debt destruction in the financial sector, but that debt has simply been transferred from the private sector to the public sector. US Government debt should hit $14 TRILLION by the November was just $12 TRILLION at the start of 2010. The value of real estate has dropped in excess of $7 Trillion, but the amount still owed on that real estate has dropped by less than $30 BILLION. I would hardly consider that debt destruction. Debt is growing, not falling. If all money is debt, and debt is growing, so too must be the money supply. Deflation? Hardly. This smells like obfuscation of the truth to me. And that truth is hyperinflation, not deflation as we are being lead to believe in the most Orwellian way.

Consumer Credit in U.S. Fell $1.3 Billion in June
Consumer credit in the U.S. declined in June for a fifth straight month, a sign an uneven labor market is discouraging borrowing.

The $1.3 billion decrease in credit followed a revised $5.3 billion drop in May, the Federal Reserve said today in Washington. Economists projected a $5.3 billion decline in the measure of credit-card debt and non-revolving loans for June, according to the median forecast in a Bloomberg News survey.

Credit-card debt that dropped in June to the lowest level since October 2005 indicates consumer purchases, which account for about 70 percent of the economy, will be restrained as Americans rebuild savings. An increase in confidence to borrow and spend more depends on job gains after companies added fewer workers than forecast in July.

“The consumer has some tough sledding ahead,” said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York. “Without any job growth, it’s going to be difficult to generate the kind of income growth we need to generate consumer spending growth.”

US Federal Reserve Chairman Bumblin' Ben Bernanke of the Banana Republic formerly known as the USA, and his cronies at the Fed, are determined to prevent deflation...this is Ben's life calling. No one has forgotten Ben's helicopter speech in 2002 prior to his assumption of the Fed's chairmanship:

James Bullard and the Fed's incredible threat
By Bill Bonner
Last week, Mr. James Bullard was being both cagey and clairvoyant. The president of the St. Louis Federal Reserve Bank noticed what everyone else has seen for months; the US economic recovery is a flop.

GDP growth was last measured pottering along at a 2.4% rate in the second quarter, less than half the speed of the last quarter of ’09. At this stage in the typical post-war recovery, GDP growth should be over 5% with strong employment. Instead, the “Help Wanted” pages are largely empty. Homeowners are still underwater. And shoppers are still largely missing from the malls that once knew them.

Whatever is going on, it is not the “V” shaped recovery that economists had expected. Many now worry that the recovery might have a “W” shape – a “double dip recession” form, with GDP growth dropping down below zero in this quarter or the next.

Mr. Bullard told a telephone press conference he worries that the US economy may become “enmeshed in a Japanese-style deflationary outcome within the next several years.” That is exactly what is likely to happen.

But it is a little early for the Fed economists to throw in the towel. They still have some fight left in them. If they were really on the ropes, for example, they could throw their “widow maker” punch – dropping dollar bills from helicopters. This would make sure that the money supply increases, even if the normal distribution channel – bank lending – is broken.

In a celebrated speech on Nov. 21, 202, Mr. Ben Bernanke, then a recent addition to the Federal Reserve Bank’s board of governors, explained why deflation was not a problem:

Like gold, US dollars have value only to the extent that they are strictly limited in supply. But the US government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost.

It was that technology to which Mr. Bullard referred when he ceased being prescient and began being cagey. He was not advocating dropping money from helicopters, not just yet. He was hoping he wouldn’t have to. Instead, he was raising the menace of inflation, in the hopes that that would be enough.

“By increasing the number of US dollars in circulation, or even by credibly threatening to do so,” Mr. Bernanke had continued, “the US government can also reduce the value of a US dollar in terms of goods and services, which is equivalent to raising prices in dollars of those goods and services… We conclude that under a paper money system, a determined government can always generate higher spending and hence positive inflation.”

There’s the problem right there. The threat must be credible. Ben Bernanke’s speech title left no doubt about his intentions: “Deflation: Making sure it doesn’t happen here.” Back then, the reported consumer price measure stood at 1.7% – slightly below the 2% target. Perhaps it was that 0.3% undershoot that set Ben Bernanke to thinking about it. If so, we wonder what he must think now. Today, the Fed is off-target by 75%, which is to say, the measured inflation rate is just 0.5%. It is beginning to look as though Ben Bernanke’s reputation as a deflation fighter is more boast than reality.

The Fed’s Open Market Committee meets on August 10th. On the agenda will be more direct purchases of US Treasury debt – bought with money that didn’t exist previously. This is what economists call “quantitative easing.” It is a way of increasing the money supply. But quantitative easing is not the same as dropping money from helicopters.

If you drop money from helicopters there is no room for ambiguity, and no doubt about what happens next. In a matter of seconds, your currency will be sold off, your loans called, and your credibility ruined for at least a generation. Quantitative easing, on the other hand, is a much more subtle proposition. It allows the central banker to maintain his credibility, at least for a while, because it doesn’t necessarily or immediately work.

When the private sector is hunkering down, the money doesn’t go far. Prices don’t rise.

Japan has done plenty of quantitative easing, with no loss to the value of the yen or to the credibility of its central bank. Europe has done it too. And so has America. The US Fed bought $1.25 trillion worth of Wall Street’s castaway credits in the ’08-’09 rescue effort. But instead of losing faith in America’s central bank, investors bend their knees and bow their heads. Incredibly, the US now announces the heaviest borrowing in history while it enjoys some of the lowest interest rates in 55years.

A threat to undermine the currency, we conclude, is only credible when it is made by someone who has already lost his credibility. That is, someone with nothing more to lose. Bernanke, Bullard, et al, are not there yet.

And you thought our economy grew all on it's own. The illusion of growth we have taken for granted since the Federal Reserve came into existence nearly 100 years ago is all about inflation, that is, a growth in the money supply. Our economy is essentially stagnant without a growth in debt, as the money supply grows in direct relation to the growth in debt. As the money supply grows, prices rise. As prices rise, more money is spent. More money spent is magically reported as economic growth. Therefore, our "economy" is a lie, perpetuated by an ever growing mountain of debt.

No jobs, no credit. No credit, no debt. No debt, no money. No money, no spending. No spending, no growth. No growth, no economy. ...or so we are lead to believe. And this is why the "fear" of Deflation is being endlessly flogged by the financial news media the past several weeks. This "fear" of Deflation is a cover for the Hyperinflation that is about to be unleashed upon an unsuspecting public. This "fear" of Deflation is one day going to be looked at as an excuse for the mess that Hyperinflation is going to cause to our economy in the not too distant future. I can hear the Fed now as the 2012 Presidential Election nears,

"We had to hyperinflate to save the country from a Deflationary Death Spiral. Today the economy is growing by leaps and bounds because we took the necessary actions to prevent a Deflationary Depression from taking hold. We averted financial disaster again."

If there is one thing you can count on the Fed for, it's the fluid movement from one financial disaster to another...all the while telling you they did the right thing, and saved the day.

May they all burn in Hell one day...

Here's Why Everyone's So Freaked Out About Deflation
In a recent blog post, economist Paul Krugman explained the theory of why deflation is bad:

• When people expect prices to drop tomorrow, they stop spending today (to wait for tomorrow). This isn't always true, of course--people still buy plenty of flat-screen TVs, even when prices drop every week, but economy-wide deflation would encourage savings at the expense of spending. (Many folks, of course, could do well to save more, but, again, this is not good for the short-term growth of the economy as a whole).

• Deflation makes the real burden of debt grow rather than shrink. If you owe $100 today, you'll have to work harder to pay it back with dollars you earn tomorrow (because you'll get fewer of them for the same amount of work).

• Wages adjust more slowly than prices, which puts pressure on company profit margins. In other words, it's harder for companies to pay employees less than to charge less for their products. Again, that's not a bad thing for the employees, but it hurts profitability--and, therefore, the stock market.

The bottom line is that deflation is good for people with high savings and low debts...and bad for people with low savings and high debts. And the US as a whole is in the latter category right now (very low savings and sky-high debts). That's why economists and investors are so terrified by the prospect of deflation.

Deflation isn't the problem, low savings and high debt are. It continues to escape me, and it should you dear reader as well, how does increasing the debt load solve a problem caused by excessive debt?

1 comment:

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