Global Inflation

Despite all the claptrap about deflation, global inflation is coming.  Through monetary system manipulation, world governments are initiating a period of global inflation.

No “stimulus” package as of yet, so the markets tread water, waiting for the savior, aka the government, to step in and right all of the wrongs so we can go merrily on our way toward truth, justice and the American way.  I wonder what the polls would say if the people realized that as a result of all this government intervention with the free market our children and grand children will be paying .56 to .58 cents of every dollar they make to the government as opposed to the the .38 cents we pay today.  Economic slavery, pure and simple.  Well, let’s move on because everyone wants “change”.

Market Update

The DOW is currently down 40 at 8,239, the NAS  down 11 at 1,580, the dollar is down .685 (0.88%) at 84.60 and gold is $15.30 at $896.10.  Everyone is taking profits across the board before the the “stimulus” package is passed.  Once the bill is passed I would expect to see a relief rally out of the DOW and the NAS until the greater impact of the bill kicks in.  The dollar should start down seriously as big players move out of it, due to the hyper-inflationary nature of the “stimulus” bill and gold should move up significantly.  But all of these things would happen in a world where what you see is what you get, not in the world that we live in where up is down.

The Future Equals Global Inflation

If we lived in a world with a real money system, that is one that was tied to something of value, not a fiat system that is constantly manipulated up and down, the prices of almost everything would actually go down every year.  People with jobs, investments and savings would become wealthier every year because productivity would increase through technology, trade and investments that prosper.

Wealth is a measurement of purchasing power and the accumulation of assets.  With a stable monetary system everyone prospers. People can save and afford houses and enjoy their discretionary income.  Businesses would prosper because they would be able to lower their cost through new technology and increase their sales to an expanding population that has the means to purchase their product.

This is only possible with a stable monetary system.  We don’t have that currently. We live under a world government system that favors those in control of the creation of money.  Employed people create wealth while fiat currency creators take wealth from those that earned it through the printing press.  One group accumulates through hard work and effort while the other group accumulates by controlling the system that enables goods to be exchanged.

In the last six months we have experienced a sudden retreat from the high prices that low interest rates created in the last bubble.  Some “experts” call this deflation.  I call it a normal reaction to over extended markets.  The pendulum is swinging back in order to correct it’s over extension.  This is normal in “free” markets.  What is not normal is the increase in the money supply that led to this bubble and the massive increase of money that is coming to supposedly solve the problem.  Government manipulation of the monetary supply caused the bubble to be way bigger than it would have been had the system been allowed to correct without the additional injections into the monetary supply.  For the time being let’s not even bring the derivative situation into this equation because I am trying to keep it simple, but for those that care, it too would have been cleansed in an honest monetary system.

Fiat Currencies Have One Common Flaw

To create money by simply printing it, destroys the monetary system and creates chaos.  When the financial crisis first erupted onto the scene, the bad banks and insurance companies should have been allowed to fail.  Stock holders would have lost, but depositors would not since their deposits were insured by the FIDC.  That is a legitimate use of  government power.  The supply of money would have decreased as the losses were booked and other banks and insurance companies would have bought them up at pennies on the dollar and managed them properly.

What happened instead and is continuing to happen, is that the monetary supply is increasing at an ever increasing rate, thanks to the global central banks.  They are giving the patient the same medicine that made him sick in the first place.  That spells inflation which in turn will lead to HYPER-INFLATION.

Some people will say, “but look at the price of housing and oil, they are going down.  How can there be inflation?”  I say look at the everyday things that you purchase in order to survive.  The things that the government has conveniently removed from it’s list of indicators, like food, medical care, insurance and taxes.  They are all on the rise and we have not even felt any of the ramifications of TARP and the ” stimulus” bill.  Inflation is coming and it is coming in a big way.  Don’t be fooled by the day to day movement of the markets and the talking heads.

Prepare for the future.  Buy gold and buy gold stocks on the dips.  Gold is honest money.  The government may try to make it illegal or confiscate it in the future, but that would be admitting culpability on their part.  A more likely scenario is that they will peg a new currency to gold after the current currency becomes worthless.  That action alone will keep gold at levels we can’t imagine.

Till next time, good luck and good trading!

More Gold Market Analysis:

• Gold Vs. Deflation and Inflation
• Inflation Defined
• Inflation and the Price of Gold
• Whether Inflation or Deflation?
• Inflation, Deflation and Patience!