People inexplicably write me and ask questions like, "Are you ever going to say
something that doesn't sound stupid?" (Answer: I sure hope so!), or, "What in
the hell is happening in the stock market, and the bond market, when you
yourself are always going yammer, yammer, yammer about how the Federal Reserve
has destroyed the United States by destroying its money and now we are all
going to die an Ugly, Ugly Death (UUD) by a runaway inflation in consumer
prices because that is what always happens after an inflation in the money
supply, which even as we speak is unbelievably expanding at an estimated 28% a
year!?!" which is
punctuated by a sort of interrobang, indicating supreme confusion and
consternation.
This second question is a little more difficult to answer, and for that I turn
to Darryl Schoon at drschoon.com, who writes, "It is believed central bankers
are trying to restore markets to help the economy. In truth, they are like life
insurance companies fighting to keep a wealthy patient alive so the high
premiums will continue to be paid and the large death payout will be
postponed."
And what are these premiums to be paid? Tax revenues to governments! They have
to, they have got to, they must keep the main business of America (trading
securities back and forth) profitable and paying both high taxes and high
incomes, on which some more taxes will be levied, so that governments (now
literally half of the economy) can spend it! Hahaha! We're freaking doomed!
Unfortunately, in the month of April, when tax revenues are due and thus have
the highest inflow of money, the federal government has shown only a small
surplus of US$159 billion, which is 10.4% lower than April 2007! Ten%!
And the total budget deficit this fiscal year is already $152.2 billion -
nearly double the $80 billion of April 2007! Yikes!
And of course, the Fed will magically create all the money that the government
needs to borrow, and all of this new money will show up as inflation in
consumer prices, and not only here but everywhere around the world, mostly via
the trade deficit.
For example, AP reports that inflation in China is getting out of hand, too, as
"April's consumer prices rose 8.5% compared with the same month last year, the
National Statistics Bureau said. That was up from March's 8.3% rate and just
short of February's 8.7%, the highest inflation in 12 years. Consumer prices
have jumped since mid-2007, driven by food costs that hit 22.1% in April." Food
up 22%! This is the stuff of nightmares!
And inflation at the consumer end is destined to get worse, too, as "[Chinese]
Producer prices rose 8.1% in April, driven by rising energy costs", which would
explain the rise in consumer items, as "April's 22.1% rise in food costs was
fueled by a 68.3% jump in the price of pork, a 46.6% increase in that of
cooking oil and a 13.6% increase for fresh vegetables." Yikes! I can only
imagine what this is doing to the price of an order of pork-fried rice with a
side of steamed veggies!
And, with a cry of despair in my voice, it is not just the Chinese, as producer
costs are going up here, too. George Ure of UrbanSurvival.com cautions us to
"Keep an eye" on the milk-feed price ratio. He reports, "On May 1, 2007, the
milk-feed price ratio was 2.67. What that means is that one dollar of feed was
necessary to produce $2.67 of milk paid to the dairyman. This week, dairy
farmers got even worse news. The new milk-feed ratio is less than $2. As of
Wednesday, May 7, 2008, it's 1.90."
And inflation is everywhere, like in Russia, as Bloomberg.com says, "Russia's
inflation rate rose to 14.3%, the highest since April 2003, led by rising food
costs", and that "Egyptian inflation accelerated to 16.4% in April", and even
in Australia, a place with a strengthening currency, "Consumer prices climbed
4.3% from a year earlier."
And regardless of the embarrassing farce known as the Consumer Price Index,
Doug Noland's Credit Bubble Bulletin has looked at actual prices, and says that
"The CRB Commodities index closed today at an all-time high, sporting a y-t-d
gain of 19% and one-year rise of 37%. The Goldman Sachs Commodities index, also
ending at a record high, has gained 28% so far this year and 68% over the past
12 months."
My God! I am stunned and afraid at the rise in these indexes, which mean higher
and higher prices, and even then, what is going on INSIDE the indexes is even
worse, as Mr Noland demonstrates when he said "During the past year, soybeans
have gained 85%, corn 72%, and wheat 68%. Prices for iron ore, steel and hard
commodities have experienced similar price inflation. Gasoline prices are up
almost 40%, natural gas about 50%, and heating oil about 90% over the past
year."
Soon everything you love will be gone, and then you will appreciate the wry
humor of the expression "Experience is what you have left when everything else
is gone." Hahahaha!
Or you could have bought gold and silver, and had everything when everything of
everybody else is gone and you end up with everything. Theoretically, anyway!
Richard Daughty is general partner and COO for Smith Consultant Group,
serving the financial and medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise to heap disrespect on those
who desperately deserve it.
(Republished with permission from
The Daily Reckoning. Copyright 2008, The Daily Reckoning.)
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