Inflation Still a Problem, Despite "Evidence" to the Contrary

I was as surprised, as many were, to see that the Consumer Price Index (CPI) actually declined in April, dropping to 2.2% inflation from March’s 2.3% inflation.

My family seemed to be endlessly delighted that inflation seems to be going is down, which is because I have been yammering about how inflation in prices going up will always be the result of a money supply that goes up, and I have been saying it for so long that they are sick, sick, sick of hearing that inflation is prices will follow inflation in the money supply, they are sick, sick, sick of hearing my voice telling them that ruinous inflation in prices will always follow ruinous inflations in the money supply, and they are happy, happy, happy that I am wrong!

You can imagine my response to this arrogance. Finally, once again, having had it Up To Here (UTH) with their insults and rude laughter, I explode in their faces “Inflation is still going up, you morons! Prices are still increasing! Watch my lips, morons! Prices are going up! The stupid CPI may show that the rate of inflation decreased by a lousy tenth of a percent lately, which I don’t believe for a second, but prices are still increasing by 2.2%! So what in the hell are you gloating about when the buying power of your money is being destroyed?”

Well, the conversation got pretty heated after I told them that this discussion about inflation was the perfect opportunity to tell them that I was, again, forced to cut expenses so that I could get a little more money to buy a little more gold, silver and oil.

In response to their usual howls of dismay and disquieting screaming about how much they hate me, I patiently explain, for the zillionth freaking time this month, that buying gold, silver and oil was the only intelligent thing to do when the US government allows the Federal Reserve to create so much money, for so long, especially when so much more money pouring, pouring, pouring into the economy has, all the way through history every time somebody tried this Stupid Economic Crap (SEC), made the prices of things rise, like stocks, bonds, real estate, food, energy and the size of government, all soaring, soaring, soaring so that now 1 out of 5 workers in this country gets paid by taxpayers through income taxes, sales taxes, excise taxes and myriad other taxes!

Which is not to mention that inflation in prices is a kind of tax on everything! And now food and energy are going to rise all over the world because central banks all over the world are creating money so that their governments can deficit-spend themselves into the Giant Black Hole Of Debt (GBHOD), all spending with mindless abandon and sporting negative budget balances as percents of GDP, except for three: Saudi Arabia (1.3% surplus), Hong Kong (0.8% surplus), and Norway (9.4% surplus (!)).

Well, the argument got loud and the neighbors started complaining, which is perhaps what caused Gene Epstein, economic beat columnist for Barron’s, to have the headline “Slack Jobs Will Blunt Inflation” which I think implies that prices will still go up, although not as fast, even though nobody has a job, which is a concept I never quite grasped, maybe because I thought it was kind of funny that “blunt” is a term for some kind of marijuana product, and I never associated Mr. Epstein with Cheech and Chong before! “Dave’s not here!” Hahaha!

Apparently, Mr. Epstein appreciated my humor and the trip down memory lane to the ’70s, and he started out his column with a funny of his own!

“Maybe you know the classic telegram,” he says. “Start worrying. Letter to follow.” Hahaha! Good one!

I suddenly thought that this would make a good Twilight Zone episode, where the scene opens up with things burning and people killing each other in the background, while in the foreground a lonely figure reads the telegram, “Start worrying. Letter to follow.”

Here is where I have the camera slowly, slowly zoom in to read the date of the telegram as the voiceover says, “Telegram? I don’t need no stinking telegram to tell me to worry, because I have been worried about this very thing since 1997 when Alan Greenspan, chairman of the Federal Reserve from 1987-2006, really started creating Fed Credit like he had lost his freaking mind and just kept it up, week after week, month after month, year after freaking year, until Ben Bernanke, his jerk successor at the Fed, went even more ballistic at the end of 2008 and doubled Fed Credit in just six months – six months! – and has continued Alan Greenspan’s disastrous rate of increase ever since! Gaaahhh! We’re freaking doomed!”

At just this moment, the camera is close enough to enable the viewer to see the date on the telegram: 1997! Wow!

The rest of the episode is a vast panorama of misery and suffering because of the disastrous inflation in the prices of food and energy, mostly featuring pretty young ladies who have nothing to wear except tiny swimsuits.

Then, cue the Twilight Zone music, and – voila! – instant classic TV!

Mr. Epstein was obviously not impressed, and our jocular overture was soon over. I noticed that ever since I created that dynamite Twilight Zone episode, he became pretty adamant that inflation in consumer prices will not happen, and said, “Those who believe that much worse is ahead for prices inflation point mainly to the huge expansion to the Federal Reserve’s monetary base – the ‘high-powered’ money from which other money is created, and the tinder that could ignite inflationary flames.”

Well, anybody can see he is talking about me, because I am one of those people who believe that the Federal Reserve creating gigantic amounts money will cause inflation in prices, and I am sure about that because that is one of the few things that I still believe, now that I have learned the ugly truth about Santa Claus, the Tooth Fairy and the fiction popularly known True Everlasting Love.

Even total local children know that I am certainly one of those who believe that the Fed creating so much money will destroy us with inflation in prices, and local folklore has it that I said, “Trick or treat? You want trick or treat? Well how about the fact that we’re freaking doomed, you moron kids? The Federal Reserve is killing our money by massive over-creation, and when your money goes, so do your parents and your brothers and your sisters and you, too! Trick or treat!”

I assume he accepts my credentials as a Fed-hating kind of guy, and he goes on to admit that Milton Freidman said, as he quotes, “You can’t have price inflation without monetary expansion” which is what one gathers from the exact quote, which I remember as, “Inflation is everywhere and always a monetary phenomenon.”

But Mr. Epstein contends that because so few people are working, you can print a lot of money but you won’t get inflation in prices unless there is tightness in the labor markets driving up incomes, which seems odd to me when unemployment in the US is running (according to John Williams of at over 20% (the worst since the Great Depression) and yet prices are still going up by 2.2%, which I don’t believe for a second because I am sure that it is higher than that by a long shot, but which, even so, was an inflation rate that was heretofore (all the way through history until now) considered, “very worrisome” and continued being “more worrisome” until inflation in prices climbed high enough to hit the red-zone of 3% inflation, which has historically proved to be the limit of economic stability and the beginning of Bad, Bad Times (BBT).

Anyway, I thought that this idea that constantly printing money was completely ruinous was recently proved by Zimbabwe, which printed so much money that at the end of the Zimbabwe dollar’s existence, inflation was running at an estimated 360 million percent per year, and few people worked.

So, I will say that I think that the real reason that the CPI is merely rising 2.2%, and not soaring as a result of all of this money being created around the world, is because the cost of housing constitutes a full 40% of the index, but now that the housing bubble has bust, the glut of housing on the market is causing the cost of housing to plummet, taking the CPI abnormally down.

So don’t worry; ruinous inflation in prices will follow huge increases in the money supply, and gold, silver and oil will be your salvation from the destruction of the rest of everything, which makes it so easy that you hear yourself saying, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning