A Comforting Solution to an Economic Nightmare
As I gather from the family’s incessant whining for me to give them more of my dollars, which is growing louder and more rudely hostile by the day, inflation in the prices of things is hitting them pretty hard. You know: The same old story.
I pride myself that I am always a loving husband and father, thoughtful enough to kindly address their financial concerns with my usual careful consideration and advice, like explaining to them “Shut up!”, whereupon — get this! — they go all hysterical on me!
Okay, I admit that breakfast time is a bad time for me to put up with this crap, having just gotten up, still groggy and dumbfounded, stumbling into the kitchen in shock, having just been updated on what economic terrors have transpired around the world during the night — a night where I tossed and turned fitfully, suffering the horrors of vivid nightmares about slavering, snarling, ravenous wolves eating my legs off as I try to crawl away, screaming in pain, and screaming, too, in my outrage at noticing that the wolves are NOT eating anybody in my family, even though THEY are the cause of me getting my legs eaten off by wolves!
Lying on the bloody ground, agonizing in mortal pain, I see them off in the distance, lazing and lounging on a beautiful veranda, gleeful and blissfully amused amid tables laden with shiny, new piles of goods and services, and they are all drinking champagne, laughing as the bankers are pulling dollar bills out of their butts! Fat guys pulling dollars out of their butts! Brrrr! Nightmare!
Now, you don’t have to be a gloating, court-appointed big-shot blowhard psychiatrist with a huge syringe telling me to “calm down” and how I will “feel better very soon,” or be a Junior Mogambo Ranger (JMR) who is educated enough in economics, to be horrified that an inflation in the money supply leads to inflation in prices which leads to economic misery and catastrophe, to accurately interpret that terrifying dream.
Obviously, the wolves are inflation in prices, fat guys doing despicable magic tricks are bankers, and the coming economic calamity of ruinous inflation in prices paid by your gluttonous family in their unquenchable zeal for consuming far beyond their means by taking this filthy money is guaranteed to painfully eat you alive, taking off a chunk of you at a time, thanks to the disgusting, evil Federal Reserve having created So Freaking Much (SFM) currency and credit in the banks over the years. More than a decade! Almost a half century, in fact!
But relax. This is not about my family hating my guts or calling me a stingy and hateful old man, or me calling them blood-sucking leeches and zombie parasites, or about breakfast time being just one of the uglier recurring episodes that is the living hell of The Tragic Mogambo (TTM).
Instead, stepping out from the horrors of nightmares into the horrors of reality, from the Consumer Metric Institute we get the chilling report that inflation in prices over the past year, as calculated by the Billion Prices Project was 3.91%! Yikes!
If that was not bad enough, the economy itself is still heading down, handily explaining why jobs are disappearing, as the report goes on that “Under-reported inflation will result in overly optimistic growth data, and if the BEA’s numbers were corrected for inflation using the BLS CPI-U the economy would be reported to be contracting at a -0.38% annualized rate. And if we were to use the BPP data to adjust for inflation the first quarter’s contraction rate would have been a staggering -2.50%.” Yikes!
Imagine an electric bill three times higher than the one you pay now!
And if we use the non-hedonic inflation measures, as painstakingly calculated by John Williams of Shadowstats.com for which we owe a debt of gratitude, price inflation is really, really, REALLY running around 8 or 9 percent, meaning that real GDP, when deflated by the actual price inflation, is collapsing at 7% or more!
David Stockman at DavidStockmansContraCorner.com must be thinking along the same lines as me, which is, to wit, “We’re freaking doomed! Soaring food and energy prices are going to eat us alive like the aforementioned slavering wolves!” because he writes that electricity prices have gone up with “a compound growth rate of 4.5% over a decade.”
Now, I learned that nobody, as they say, “understands the exponential function” like “4.5% compounded over ten years”, so I helpfully fill that educational need with something more concrete, more graspable, more understandable, more Mogambo-like, as in, “Doing the math, you are paying 50% more dollars for electricity, which is a vital commodity on which you rely more and more, every day of your stupid life! And it is going to get worse from here! So how do you like the results of constant, simmering inflation, you stupid lowlife who would not listen to The Mogambo telling you to vote out of office the spendthrift halfwits in Congress who are deficit-spending us to hell by allowing the evil Federal Reserve to create so horribly much excess cash and credit that it causes such inflationary misery that, as previously posited, we’re freaking doomed?”
Again, perhaps thinking along the same lines, namely that the evil Federal Reserve is the cause of all of our problems, Mr. Stockman says, “So starting off with a 100-year perspective on electrical power prices, the rise of Keynesian central banking after August 1971 has been associated with persistent inflation, not deflation”, at least as far as electricity prices go, to which I will append the pithy, “and as far as all prices have gone, too!”
I mean, look around you! Or listen to my family complaining and begging me for money! Things simply cost a lot more than they used to!
As, for example, how much have the aforementioned electricity price increased since 1971? 300% higher prices! Trebling! Imagine an electric bill three times higher than the one you pay now!
Of course, there are those who argue, “But incomes were lower then, too, so it evens out, and anyway, you are a stupid idiot who doesn’t know anything, so shut up, Stupid Mogambo Moron (SMM).”
Stung by such rudeness and disturbing disregard for the poor and the annuitant, I am at a loss for words at being berated with something so completely stupid, when, as if by magic, Mr. Stockman must have heard of my problem! The good news is that he decided to comment on it, too, explaining everything, whereas the bad news is that he is starving me of the attention that I so desperately crave, as I probably would have thought of a clever reply eventually, and then I would look like a hero for a change.
And he even manages to upstage me in the process, by calculating, “For those who think this kind of ‘moderate’ inflation is a salutary thing, consider what a dollar saved today would be worth after a thirty year working life time under that 3.5% inflation regime. Answer: 35 cents.”
So, I rub my eyes in disbelief, my voice trembling, benumbed by the shock that, thinking ahead to retirement, I need to save three whole dollars of buying power today to have one lousy dollar of buying power in the future? Over 30 years this comes to requiring 3.73% a year on my investment, just to break even in terms of buying power! Yikes! To achieve a lousy standstill!
And this is BEFORE fees, taxes and expenses! Gaaahhh! We’re freaking doomed!
Ignoring me, he goes on and on, each statistic stabbing like a red-hot dagger in my heart. He writes, “retail gasoline prices are up by an almost equally inflationary 6.0% over the past nine years,” that rents have risen at a 3% compound rate, and the cost of the utilities of water, sewer and trash collection are up 4.5% a year, compounded, over that decade, too!
As if out of nowhere, here comes Greg Guenthner at Agora’s Rude Awakening newsletter writing about inflation in prices, too, reporting that “cocoa is up 34% since June” on “scorching” demand from China.
Then he offers up this prophetic couplet: “Say what you will about China’s economy, but its taste for chocolate is on the rise. Prices are following suit.”
I say, both personally and as the Brilliant Loudmouth Mogambo (BLM) who disdains all who contradict me in any way, dismissing them with an upturned eyebrow and a sneer on my lips, that a third of the world’s population which is, as yet, relatively unburdened with personal debt problems and can easily go massively into debt to buy things, has a lot of potential!
And Mr. Guenthner’s comment that “prices are following suit” is especially chilling when increasing Chinese demand and a lower exchange-rate dollar will combine to make things much, much, MUCH more expensive for us “home folks” (you and me!) that like chocolate. Well, more crave than like, I suppose, but that is not the point and you know it.
The point is that now we can’t afford chocolate, either. Great. Just freaking great.
And to make things worse, he finds that “beef prices are up 16% year over year,” which will send up the price of hamburgers again and again. I repeat: Great. Just freaking great.
If even you did NOT listen to my sage advice all these years to buy gold and silver, nor to wisely vote out of office the leftist losers who actually think that the government is supposed to help everybody, and who thus allowed the evil Federal Reserve to create so much excess cash and credit that made such outlandish budget deficits even possible, much less promoting the astounding bubbles in stocks, bonds, houses, tuition loans and personal debt, it is still not too late to save, in the vernacular, your Sweet Financial Butt (SFB) from the horrors of inflation in prices that is not only surely coming, but is actually here.
Anyway, all you gotta do is invest your money in gold and silver! It’s so breathtakingly simple! This dynamite investment philosophy has worked like a charm for the last few thousand years, despite the frantic efforts of all the bankrupted governments along the way, and it will work this time, too, for the simple reason that there are still no other “ultimate safe alternatives” in the world!
So, hahahaha! What else can one do but laugh at the staggering simplicity of exchanging fiat dollars for actual gold and silver, which are guaranteed by all of history to make you wealthy when you can buy it this cheap during extreme monetary conditions like this? Whee! This investing stuff is easy!
Ed. Note: There is no stopping inflation. It’s like a massive bulldozer, intent on destroying the purchasing power of any “currency” that isn’t gold or silver. But there are ways to maintain a steady stream of profits even in the face of this destructive economic force. That’s why The Daily Reckoning email edition, where this essay was originally featured, offers readers several chances to discover real, actionable profit opportunities in every single issue. Sign up for FREE, right here, and never miss another great chance to safeguard and grow your wealth in any kind of market.