Inflation-Deflation? Yes!

November 2, 2002

To Quote Clinton, It depends on what the meaning of…..is." It really does! If you mean dollar prices going down on certain things means "deflation," then yes, we have "deflation." If "inflation" means an increase in the currency supply, which is the correct definition, then we certainly do have "inflation."

Prices in dollars are going down in several things right now, and might continue to do so, with possibly new items added. The reasons are simple. Real estate prices are going down, because of an over-supply, people getting laid off and failing to pay their mortgages. Highest priced properties first, with progressively lower property values being added to the list. Higher priced properties first, because it is the "keep up with the Joneses" class that have been hit first and hardest. Rather than selling and getting out of debt when the stock market rolled on and on, these boobs kept getting into more and more debt. As the promotions kept coming in, the homes kept getting bigger, and mortgages higher. When it all went to hell, they are bailing out first, and many times walking away from homes and mortgages. These high priced homes are available now for far less than they sold for just a few years ago. The same progressive decline in real estate prices will continue on down the ladder, with progressively less percentages of decline. Less, because the lower one goes on the price level, the closer it comes to the actual cost of building. Deflation? Not technically, because declining prices are not an accurate definition of deflation, but in the CNBC's eyes, it is "deflation."

Prices going down on autos? Yes, and in last Sunday's paper, an ad said that after all the discounts, one could get a new Buick for $20,000, with zero percent financing. In 1941, a new Buick was $800. It is rumored that Ford loses on each sale. The auto manufacturers try not to lay off, because union contracts say they'll have to pay employees anyway, so they're actually selling cars at manufacturing cost, for all practical purposes. Dealerships have to keep them moving, or get stuck with merchandise they'll have to pay for, so they're doing almost the same thing. Deflation in cars? Only in prices, while the currency supply keeps zooming up, which is what inflation is.

Decreasing prices of gas, oil, or other things? Possibly. Furniture that used to be made in America is now made in China, and is cheaper than American made stuff. From $18 per hour to $18 per month, or less for workers. Clothes, made god knows where, by virtual slave labor? This makes dollar prices lower. China Marts, Home Depots, Michael's, etc., are China's best customers, and their prices are cheaper than American made things. (Americans make only 16% of what they consume) Deflation? Not technically. Only a lowering of prices, while the currency supply reaches for the stars, which is what inflation is.

Things NOT made in China, Korea, Mexico, or wherever labor is cheap and government doesn't tax labor and property to death, are going up in dollars, and this is a REACTION to inflation, but it isn't inflation either, because a reaction is far different from an action. Once again, Stott's Law states that "The more of anything there is, the less they will be worth." This explains the decline in real estate prices, because as people walk away from, or attempt to sell, prices goes down. It also explains the flood of new and used cars parked on lots everywhere. There are so many of them, that prices are down, and they are worth less. Since the Fed is continually pumping more and more dollars into circulation, they are becoming worth less and less. While they are declining in value, prices of some manufactured goods and real estate, are going down faster than the dollar is declining in purchasing power, so people think we are having "deflation." We aren't. What is happening, is that the buck is sliding, thanks to an ever increasing supply, but some things are sliding faster. This cannot continue for long, because sellers of goods, whatever they may be, will run out of surplus or buyers eventually, and then the so called "deflation" will come to a screeching halt, and pure, unadulterated inflation will continue till the currencies become absolutely worthless.

Unless, of course, you believe that history does not repeat itself, laws of economics are false, 2 + 2 = 5, the earth is flat, and logic means nothing.

As I have said before, just THINK, and do not be ruled by popular opinion, or the TV heralders of prosperity telling us, it is here, but just taking a bit longer to show itself in full bloom. THINK of some possible way that $40 billion weekly added to the dollar supply, can allow them to hold their value. THINK of how, when the entire world's paper monies are backed by nothing, they can sustain value or purchasing power. THINK of how "investing" in anything that is denominated in these paper monies can maintain value, no matter how much interest is paid, unless it is lower than the actual inflation rate (not the figure propounded by governments) less taxes. The inflation rate, as announced by the various governments in the world are fraudulent. Why? If the governments accurately told of inflation, battle casualties, political intrigues, behind the scenes deals, financial holdings of politicos, danger of Saddam, etc, these governments would be looked upon as ridiculous. Governments must protect themselves, and they do this quite well…with reams of propaganda issued daily to the media in press conferences and news releases.

THINK of how to protect yourself from the ravages of inflation, and you will have to come to the conclusion that protection isn't achieved by paper money denominated instruments, or hiding paper money under a mattress. A fellow called me the other day, and told me that he didn't have any money in the bank, but he and his wife had $20,000 in cash hidden somewhere. I about fell out of my chair! Of all the dumb things to do, this has to be it. I guess I was a bit rude, and if you read this my dear man, I apologize. "Investing" it in dollar stuff is a bad enough thing to do with $20,000, but to hide it, is even worse, because you are then exposed to the true inflation rate, with no interest. Each day, that $20,000 loses a bit of its purchasing power. The dollars are safe, but having $20,000 physically safe, does not preserve their value or purchasing power. It vanishes right before your eyes. It only keeps them away from the tax man.

All tangibles are free from the tax man, except possibly real estate. If you bought an original oil painting for $500, and sold it for $1,000, how would the tax collector know? If you bought a Model A Ford from a stupid seller for $5,000 and sold it for $10,000, how would the tax collector know? (They sold for $300 in 1931) If you do yard sales every weekend, and make a few bucks buying and selling junk, how would the tax collector know?

We are having continual inflation around the world. Inflation, meaning a continual increase in the supply of ALL currencies, on a daily basis. This means an eventual end to any "value" they may possess. "Deflation," only as a badly defined and used term, for some items, which cannot last forever. Inflation has always resulted in any currency ever made, printed or used, becoming absolutely worthless. Some currencies take longer than others to decline to zero. The dollar has done better than others, because it had some backing until 1971, but when the final backing was removed by Nixon, the final result is much easier to obtain. For the first time in recorded history, ALL currencies are self-debasing because their political bosses are inflating. Inflating to keep their jobs and prestige, or even their lives in some cases.

I am preaching to the choir I suppose, but maybe not, because tens of thousands of you readers still have CD's, savings accounts and government bonds that are costing you every day you keep them. It is to YOU I preach. That is no way to protect yourself. It is foolish. I am not saying this because I am a gold and silver dealer. I haven't even used the word gold or silver in this, except for the previous sentence. I say these things because I honestly believe them, because they are logical, sensible, and important for your future. Protect yourself, because things don't look too good from this outpost. Eventually, we'll be lighting our fires with dollar bills.

The Federal Reserve Bank of New York holds the world's largest accumulation of monetary gold.

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