Inflation comes back to US!
Janet Yellen continues to demonstrate that she is either profoundly ignorant or dishonest. Neither of those are positive qualities for a Fed Chair. Having maintained interest rates at essentially ZERO for seven years during the Obama years, Yellen suddenly believes it would be “unwise” to wait too long to raise rates now. It’s a bizarre claim, particularly when you consider:
The US economy is limping along at best and entering a recession at worse (2016 GDP growth was a measly 1.9% and a the latest spate of data has all suggested a contraction is underway).
The Fed owns some $2.4 trillion Treasuries, which would be negatively impacted by the Fed raising rates.
There are over $555 TRILLION in interest-rate based derivatives floating around… which similarly would be negatively impacted by raising rates.
US wholesale inflation posted its largest monthly jump in four years yesterday. Core Producer Price Index rose 0.4%; only 0.2% was expected. And Fed Chair Janet Yellen blatantly hinted at another interest rate hike in March… despite clear evidence the US economy is rolling over.
The fact is that the Fed realizes it has let the inflation genie out of the bottle. The inflation rate is already well above the Fed’s desired target of 2%, having moved a total of 3% higher in the last 18 months. Gold and Silver have already "figured it out." They're up 6% and 11% thus far year to date.
Now, let's see what inflation is, what shapes it can have, and what it can do. Here is an excerpt from the first episode of Mike Maloney’s series “Hidden secrets of Money”.
Mike Maloney: Hidden secrets of Money
The proper definition of inflation, I use Milton Friedman's definition. Inflation is an expansion of the currency supply. Deflation is a contraction of the currency supply. If you expand the currency supply, eventually prices will rise. And if you contract the currency supply, eventually prices will fall. This is a pool. But it's not a pool of water. This is a, the currency pool. And if you expand the currency supply, prices like a sponge in water have to rise to suck up the excess currency.
Governments never stop printing more currency and adding currency to circulation. Therefore, prices keep on going up. Not because they stuff that you're trying to buy is changing. The real estate doesn't change. What has changed is the currency purchases less and less. It's the currency going down. Not prices going up.
The truth is, what we have that makes our world work right now is a big story. None of it's real. It's all just promises. And if you think about it, that's how currency began to work in the beginning.
Origin of Money
You know, before we had currency we had barter. I'll give you three coconuts and you give me four fish 'cause that's kind of a fair exchange on coconuts and fish. But that got complicated so we had to invent this thing called money to be a divisible, portable medium of exchange. And the challenge is that we've lost that a long time ago. We lost having things of value be our currency. And now we have this thing called numbers and accounts. But trust me. It is not real. It's a big made up story.
One of the biggest make believe stories ever is called quantitative easing which sounds complex, but it's really just a smoke and mirrors term for currency creation. QE started with the banking bailouts back in 2009. This currency was created out of thin air and then given to the banks who paid themselves record bonuses in reward for crashing the world economy. This is a global phenomenon, but all you have to remember for now is that whether it's QE, bailouts, or stimulus programs, these are all just voodoo, hocus pocus terms for increased currency creation.
I believe gold and silver will reassert themselves as money and when they do, there just isn't enough. And their purchasing power is going to go up many, many, many times.
Egypt is an amazing place. There's a franticness about it, an utter chaos. Especially like the traffic. When it comes to like all of the merchants that are trying to get every last dime out of you, you get fleeced to the point where you come back with an empty wallet. But you know what? They're amateurs compared to Wall Street.
In the past several years, I've, I've spoken in many countries about the crisis that's coming, and a lot of people think that they're gonna be okay in their country. That it's only gonna happen in the United States or maybe the United States and Europe. But what they don't realize is that this is a global phenomenon.
United States, Canada, Australia, South Africa, Russia, Singapore, India, China… Every government on the planet is doing this insane deficit spending and expanding their currency supplies, doing bailouts. And history shows that there is no example of this turning out well.
Export of inflation
It is sometimes amazing that we haven't experienced more inflation than we have.
If they keep expanding the money supply so vastly, why aren't our prices growing faster than they really are? And the answer is that a good chunk of the money that the Fed created has been shipped overseas.
I remember early in my research I heard this expression that the Americans have exported their inflation. I thought what is that? How can you export your inflation? Put it in a box and send it out? What do you do?
Well now I understand. You export your inflation by simply sending all these dollars that you created to these other countries – and then they send you their refrigerators and their cars and whatever, their TV sets. So you get hardware and they get little pieces of paper. It's a great deal for the American people for a while. For a while. Sooner or later all of those pigeons come home to roost.
When the time comes as it looks like it's now coming, when the rest of the world is saying nuh-uh we don't want to play this game anymore. Uncle Sam's dollars are just becoming worthless. There are too many of them. We've got to find something else other than American dollars. Then those dollars start to come back to America. People, we don't want them anymore. What do we do with them? Once this revs up and we've got this, this little trickle of money coming back that we'd previously exported, when, once it becomes a flood and it starts to rush back, now we are getting our former exported inflation brought back to us. And then we'll see the quantity of money inside the United States grow much more rapidly – even than the Federal Reserve can create it because we're getting our previous money back. And, that's when we will really see the tanking of the U.S. Dollar in terms of what it will buy.
Breaking point of States
During the second round of quantitative easing, global food prices went up 60 percent, and this created a humanitarian disaster for the two billion people on earth who live on less than two dollars a day. These people were hungry to start with. They became hungrier and some of them started overthrowing their governments in North Africa and around the Middle East.
So quantitative easing was the spark that ignited the Arab Spring. So that's, that's it. When you create money, you get some sort of inflation. It just depends on where the inflation goes.
Given the premise that you have a permanent underclass or poor class and how does inflation affect them disproportionately, it affects them basically in the percentage of their income that goes to food. And we see this as a ratio, and we know that there are some danger points. For example in Egypt recently, once that ratio got to 40 percent of income going to food – and the price of food rising due to inflation, when it got to 40 percent that's historically a point where people actually stage a revolution.
That's exactly what we saw. The French Revolution similarly was all around the price of food getting to a certain critical point where people simply, the risk-reward for revolution was favorable toward revolution. Well, exactly right because when you have a runaway inflation, it's punishing the very people who are most productive in society. In other words the people that produce more than they consume and save the difference. The problem is is that those productive people, the savers, save in their national currency – and unfortunately the national currency is just a fiat piece of paper at this point.
Really great bad news
So when it's destroyed through runaway inflation, that 100,000 dollars that you were hoping to retire on doesn't exist. And the things that you were gonna buy with it and provide for others don't exist either. Now what are you gonna do? So that all seems pretty scary. However, uh, you know, this is going to happen and you can only play the hand that you're dealt.
But the great news is that gold and silver always end up doing an accounting of the expansion of the currency supplies. Basically the will of the public and the free markets. When governments do this kind of stuff to their currency supply, they debase it, eventually it comes back in inflation. People sense the loss of their puchasing power. They rush back to gold and silver and they bid the value of – the gold and silver up in the country until it meets or exceeds the value of all the currency in circulation.
This is a process that's been going on over and over again throughout history except this time it's happening on a global scale. It has never before happened in all countries at once. And that means that this is the greatest wealth transfer in history. Therefore it's the greatest opportunity in history and it's not gonna happen again in your lifetime.
Sources: Gains, Pains & Capital and Mike Maloney
Find more about this in the Inflation comes back to US! (Part II)