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The
interesting part of growing older, that my wife and I have noticed, is the appearance
that time speeds up. As each month that passes turns into years, as a
60+-year-old I’m feeling the passage of time quite differently than a
child would; a year to me feels more like a month, whereas a month in a
child’s life feels like a lifetime. Needless to say, I’m
still encouraged to continue my favorite pastime of tracking the fluctuations
in the cost of living, and my fascination with prices and values has not
waned one bit. Also, my wife’s frugalness and aversion to
throwing food away has made me very curious about commodity prices, so
recently I did some research and discovered the facts weren’t
pretty. Below are some Commodity Price increases over the past
year:
Yep, looking at key raw material
prices compared to last year, the recession is over. These prices are
getting loaded into the system now and will flow through to the consumer in
higher prices to come at the supermarket and elsewhere.
But it’s not just raw
materials soaring; it’s everything. One example is my health
insurance bill that came with the usual 20 percent annual increase.
With Obamacare starting to take effect, insurance companies are rushing to
push in price increases to cover expanded care and no caps on total
payouts. Airline fares are already up 14 percent from last year, and if
you plan to book a flight over the holidays, the rates have been jacked up to
total price gouging levels. Don’t believe the Wall Street hype,
either, about being consumer-friendly and adding efficiency when it comes to the
announced mergers of United and Continental Airlines, Southwest and AirTran,
and Hertz and Avis bidding for Dollar Thrifty. The real reason mergers
are done is to cut workers, destroy competition, and stick it to the consumer
with higher prices, while Wall Street reaps huge profits.
Expect the prices at supercenter
retail stores to increase as well. Wal-Mart, as one example, grew so
large and great by blowing up small stores on Main Street, along with our
American factories, which were moved to China to take advantage of cheap
labor. Wal-Mart and other superstores have effectively
become storefronts for China, Inc. However, given labor unrest in
China, major Chinese manufacturers have caved in and given their workers 20
percent wage hikes. The days of cheap Chinese labor are fading.
Worst yet, for consumer prices, it actually looks like our government has
made a conscious decision to throw the dollar under the bus and go for a 20
– 40 percent dollar devaluation against the Yuan to try and boost
exports, limit imports, and create American jobs. Moreover, with higher
wages and a higher currency, those 1.3 billion hungry Chinese will be better
positioned to bid in the world for oil, wheat, and pork bellies. So,
the likely trend for commodity demand will be up in a world where the Russian
wheat crop failed, and the world’s coffee and cotton crops were duds.
As our government officials
continue to scare us with a phony deflation scare, the Federal Reserve is
geared up for QE II, and it looks like we may be willing to get tough with
China to force its currency up. Moreover, America is not the only
country with a central bank that prints money to try and hold the exchange
value of their currency down. England, Japan, Korea, Switzerland, and
Brazil have all used a version of central bank money printing. Rising
commodity prices, a rising Chinese currency, and a world money supply –
growing at double digits in a world where output is hardly growing at all
– are all the ingredients needed in a recipe for a very potent
inflationary cocktail.
If you’re getting older like
me and notice time speeding up, the next ten years will pass quickly. At the
rate we’re going – in terms of world money printing and federal
deficits – I honestly expect the cost of buying the necessities of
life, such as food and energy, will double over the next decade. A
doubling of prices is the order of magnitude that is necessary to rebalance
the world economy and make the bad debts in the credit system
manageable. It seems to me that the biggest losers are going to be
those who have to spend the greatest portion of their income on the
necessities of life, including the 41 million people on food stamps, and the
60 million receiving Social Security. Because so many of us will suffer,
take heed if you live in the suburbs; at least you can start a Victory
garden.
In looking back, I don’t
know if I was smarter than I thought or just plain lucky when I bought gold
at $350 and $450, and silver at $4.5, and $12.40, I just wish I had more fiat
dollars so I could trade them for real tangible assets at today’s
current prices. I figure if I have tangible assets like gold in the future,
no matter what the world central banks set the price level at, I’ll be
able to trade my gold for the necessities I need to live. If prices for
goods stay the same, double, or triple I won’t care because it’s
all the same to me: gold and silver will follow the government-created
inflation wherever it goes!
Richard Benson
SfGroup.org
Richard Benson is the founder of The Specialty
Finance Group ("SFG") was founded in 1989 as a financial broker to
private finance companies, introducing them to major financial institutions
that would provide them with equity, subordinated debt, and senior credit
facilities using the Capital Market.
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