Inflation Invasion

By: Andy_Sutton

Imagine this for a scene: It is that fateful night and you are on the Titanic. You have just witnessed a collision with a massive iceberg and can hear the water rushing into the 'waterproof' compartments. The Captain comes to the railing and begins telling the passengers in a very monotonous, soothing, familiar pentameter that everything is fine. You look up and there stands...Ben Bernanke??

Yes folks, we are awash in inflation, yet to listen to our appointed politicos you'd think that inflation was nothing more than an annoying insect that we can just swat away whenever it dares invade our airspace. Of course you already knew all this. You've been writing in for months now that your grocery, fuel, medical and utility bills are rising; and quickly. Yesterday I was accosted by the manager at the local auto parts store when I asked him how things were going. Things in fact are not going well at all for the average Joe. I listened to his tale, genuinely interested and completely disgusted at the bill of goods that has been sold to the American people. Inflation truly has become the proverbial fly in the ointment. Even the most suspect of numbers point to increases in consumer prices that are downright scary. Match this with M3 growth at a double-digit clip and it begs the question: How long can this last?

Reports out of China cite massive increases in the price of pork; a staple food item. Unlike the products on their store shelves, their inflation bears the label 'Made in America'. Maybe the guys at the Commerce Department should figure out how to put a dollar value on the inflation we export. If they could do that, maybe we could get rid of that annoying trade deficit. How long are the other nations of the world going to allow inflation created in the United States to wreak financial havoc on their economies? Surely, we have had significant price increases here against a backdrop of relatively stagnant wages. This is no longer just the problem of foreigners sending us their savings. This is now a fully double-edged sword. They send us their savings and then we send them inflation which incinerates whatever savings remain. Anyone with a shred of common sense can see that this clearly is not a sustainable path.

As if to validate my ranting and raving for the past year, yesterday on MarketWatch Jennifer Openshaw penned a short piece on the fact that food prices are taking a bigger and bigger bite out of our monthly budgets. We should expect this to continue. Read the article using the following link .

Why is it that food and energy are completely discounted by the elite and the media? The excuse has always been that food and energy prices are volatile and they wanted 'smooth' data. This works if you have a sudden spike in something due to some extraneous event. You don't want that event driving policy. However, when higher prices are persistent, then they need to be included and policy decisions need to keep these higher prices in mind.

The potentially scary development in this situation, however, is that interest rates finally seem to be coming off of their multi-year hallucinogenic trip and are starting to correct - upward. This is absolutely horrible news for savers and spenders alike; particularly in the long term for the former as they will watch their dollars atrophy away to nothing. This has already happened. The dollar has lost 95% of its value since the Federal Reserve was created. Great job guys.

Upon further examination, the Federal Reserve has not only the authority, but the mandate to step in and buy the long end of the yield curve to keep the dollar from collapsing. This is dripping with irony since the the only way the Fed can buy all this debt is to print up truckloads of the currency they have the mandate to save. 

Think that is ironic? Try this one on for size: 

Inflation in the housing market has prompted millions of Americans to spend well in excess of their means, running up massive debt. The government, having been stricken with the same affliction has a ton of its own debt and would desperately like to repudiate as much of it as possible. So it kills the currency, its own debt and the debt of all the home-ATM crowd. And the collateral damage is the savings of responsible Americans. You, yes YOU are going to pay for this mess.. Those $2000 annual contributions to your 401/IRA are going to be for nothing if you don't get them out of the dollar - and soon.

The dollar may still have the status as the world's reserve currency, but it has lost its status as a proxy for wealth. This may well be your last best chance to protect your remaining purchasing power. Scary times are ahead as the keepers of the fiat phony struggle to keep a lid on their fraud. Don't listen to me; read a history book. Like Mark Twain said 'History may not always repeat, but it sure does rhyme.'

By Andy Sutton
http://www.my2centsonline.com

Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. He currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar.

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