"Deflation" and the Soaring Cost of Living

First off, I just want to thank you for the outpouring of support following Friday’s article, “Truth – and Passion – at a Premium.” Hands down, in more than a decade of writing free missives – and certainly, my 3½ years at Miles Franklin, it was the most universally positive feedback I’ve received – including “special guest” responses from fellow freedom fighters Chris Duane and Brother John F.

Clearly, the Cartel’s recent, heinous machinations – not just in Precious Metals, but across the entire spectrum of so-called financial “markets” – have elicited as much angst, anger and frustration across the real money community as any before; and no, I don’t think it’s a coincidence that Friday’s comical COMEX-opening slam – immediately following horrific PMI Manufacturing, construction spending, and motor vehicle sales – occurred on the four-year anniversary of the May 1, 2011 “Sunday Night Paper Silver Massacre.” Nor, for that matter, the Thursday’s COMEX-opening smash following abysmal personal income and spending data, and Wednesday’s clockwork post-FOMC raid, despite the Fed being as unequivocally dovish – and “unexpectedly” so – as possible. Let alone, as the FOMC statement was published simultaneously with one of the ugliest GDP reports in years.

In fact, TPTB’s market manipulation has become so pervasive – and mind-boggling – it’s becoming painful to turn on my screen each morning. To wit, the “oil PPT” is pushing oil prices higher – and inflating the shale dotcom bubble further – as oil fundamentals collapse; whilst the “copper PPT” is supporting “Dr. Death” amidst equally dire copper fundamentals. And of course, whilst the gold Cartel attacks Precious Metals prices every second of every day, the “President’s Working Group on Financial Markets” unwaveringly supports the “Dow Jones Propaganda Average” with “dead ringer”, “hail mary,” and countless other blatantly transparent algorithms – yielding record equity valuations amidst the worst economic data since the 2008 financial crisis. Not to mention, flat out declines in corporate revenues and earnings. Heck, the Atlanta Fed’s real-time GDP “Now-Cast” – which predicted the first quarter’s 1Q growth rate of 0.2% to a tee, now forecasts 2Q growth of a way below consensus 0.8%. Of course, the one market “they” are losing control of – in my view, due to accelerated Chinese selling – is Treasury bonds, where rates have been rising despite the Fed all but screaming “ZIRP to Infinity.”

Fortunately, the walls are finally starting to close around the monsters perpetrating this economic and inflationary hell on the world – as with each passing day, destructive Keynesian monetary policy is being further denigrated, en route to the decisive “death of Fed (and other Central bank) credibility.” To wit, in last weekend’s MUST HEAR audioblog, I couldn’t have hit the title on the head better than “Earth to Janet, No One is Listening” – as just this weekend, her damning comments from a December 2008 FOMC meeting enabled the whole world to realize her true feelings about the inability of money printing to solve financial and economic problems.

“As Japan found during its quantitative easing program, increasing the size of the monetary base above levels needed to provide ample liquidity to the banking system had no discernible economic effects aside from those associated with communicating the Bank of Japan’s commitment to the zero interest rate policy.”

And don’t forget the most inept Central bank on the planet – the Swiss National Bank – who in my view, took that infamous title from the Bank of Japan when it convinced the Swiss population to vote “no” on the “Save our Swiss Gold” referendum under the guise of its need to maintain the Franc/Euro peg – only to have it blow up in its face within weeks, causing massive financial losses and a permanent loss of face. To wit, we learned this week that not only does the SNB still hold massive foreign currency holdings – most likely, still dominated by the dying Euro; but in lieu of purchasing the time-honored safety and insurance of gold, they have become one of the world’s largest taxpayer funded “hedge funds” – buying up more than $100 billion of global equities, at all-time high valuations. No, nothing could possibly go wrong here.

Those horrors aside, it’s time for me to discuss – or better put, “rant” – about a topic that disgusts me as much as market manipulation itself. Which, of course, is the canard-of “deflation”; which not only cannot occur in a fiat currency regime, but is decidedly not doing so today – particularly in the lives of the seven billion people that don’t use the world’s “reserve currency” (the average currency has plunged 40% since the Fed commenced “Operation Twist”, QE2, and QE3 in 2011). Not that the Miles Franklin Blog hasn’t discussed this topic ad nauseum for years, but the topic recently resurfaced – like a cancerous tumor – when the “deflation boogeyman,” Harry Dent, claimed gold would plunge due to this mythical phenomenon.

This weekend, my Mom came to visit from New York. Whilst here, we had several conversations – and at times, disputes – about the cost of living. Following these discussions – with someone decidedly not amongst the financial community – my view of Americans as “frogs in a boiling pot” of simmering inflation couldn’t be stronger. Truly, the average person – certainly in the States, and likely many other nations – has no idea why the cost of living continues to surge; and certainly, no understanding of the virulent, irreversible forces of money printing.

Over the past year, I have written endlessly of the countless items rising in price – some more than others, some faster than others – which is exactly why real household income has been declining for four decades. Which, by the way, even my non-financial mom understood well. However, she was literally dumbfounded when I told her the litany of “need versus want” prices at or near record prices – including food staples like milk, beef, pork, chicken, shrimp, eggs, cheese, and many fruits and vegetables; shelter costs, including both house prices and rents; utilities; tuition; and even water. Not to mention, all types of insurance – in large part the direct result of ZIRP policy (and litigiousness), which forces insurance companies to raise premiums to offset the impact of lower interest income. Not to mention, inflation in the form of relentless tax increases – such as the all-time high level of U.S. property and sales tax revenues; fee increases everywhere from airlines (baggage fees, no more free food); to car registrations; athletic league costs; and essentially all bank transactions, to name a few I can personally identify with. Throw in “creeping” premiums on everything from gym memberships; to ADT security; cable TV; and internet usage, to name a few, and we’re taking some serious cost of living increases. Heck, even as the Fed has kept rates for TBTF banks at essentially zero for seven years, average credit card APR’s have hit a 17-year high of 15%! And I won’t even go into the cost explosion in areas where the “1%” that receive the bulk of the Fed’s largesse reside – like New York and Washington, DC, for example; which is exactly why people are flocking en masse to states (like Colorado) with lower costs of living, and fleeing from such high cost states.

That said, she couldn’t be more aware of the behaviors Americans are cumulatively taking to offset the inflationary impact of the end of income caused by permanent ZIRP – and soon to be NIRP – policy. Such as, for example, the frantic search for credit cards paying an extra half-percent of cash rewards (I recommend Chase Sapphire, Capital One Quiksilver, and Citibank Double Cash); explosive traffic growth at “dollar stores” like Family Dollar and Dollar Tree (although shoppers need to realize product “shrinkage” causes many dollar store items to be rip-offs); thrift stores like TJ Maxx, Home Goods, and Ross; and transactions on Craig’s List. Heck, this weekend was my neighborhood’s annual garage sale – and my god, I have never seen such activity – and planning – in eight years of living here!

As I’ve discussed for years – and particularly, recent years – “all economic data are lies.” However, no lie is more pervasive – although “unemployment” and “GDP” are certainly in the ballpark – than the “sub 2%” inflation the relentlessly rejiggered CPI purports, care of “substitution”, “hedonistic adjustments,” and countless other statistical gimmicks. Consequently, the Fed is able to eternally print money, under the guise that its 2% target is never reached – as if they wouldn’t just raise the bar if it ever got there, as they did when they eliminated the 6.5% “unemployment rate” threshold.

In fact, it’s outright insulting that the BEA (Bureau of Economic Analysis) claimed first quarter deflation of 0.1% – which was clearly done simply to keep the real GDP rate positive. And no, falling gasoline prices – which have since rocketed higher – did not cause the cost of living to decline; particularly in an historically bad economy, where said taxes, fees, and “premium creep” have become mainstream corporate and municipal “profit enhancement tools.” As you can see below, aside the bottom of the 2008 crisis, the only time the GDP deflator has been negative was a brief period in 1949. As for the “deflation” the Fed is so terrified of, take a gander at the (massively suppressed) CPI itself; which not only has relentlessly risen since the Federal Reserve was (deceivingly) created in 1913, but exploded since the gold standard was abandoned in 1971.

In the big picture, the only things as certain as death and taxes are ZIRP and QE to infinity in the terminal stage of a fiat currency regime; as well as exploding gold and silver demand – and care of two decades of price suppression, collapsing PM supply.