Reading time: 2,156 words, 8 pages, 5 to 9 minutes.
Governments’ fictitious inflation statistics conceal our shrinking economies. All western governments are “cooking the books” and lying about inflation thus disguising our unraveling economies. The real inflation rate in the U.S. is about 9% according to John Williams’ Shadowstats and the real Canadian inflation rate is about 7% as I explained in Non-Recovery Alert. Most other western countries are somewhere in the same range.
Before going any further, let’s define inflation as a rise in the general price level of consumer goods and services over a period of time and the Inflation rate is the annualized percentage change in CPI ( Consumer Price Index ) over time. There is considerable debate about the finer points of inflation but, for our purposes this general definition will suffice.
We are told that our economies are limping along at 1% or 2% growth. That’s bullshit! Our economies are SHRINKING. The official GDP growth statistics are adjusted for the official (bullshit) inflation rate. They are NOT adjusted for the real inflation rate. Adjusted for the real inflation rate, the U.S. economy is shrinking (round numbers) 1 – 9 = 8% a year and Canada is shrinking 2 – 7 = 5% a year. With the magic of compound interest, the U.S. economy has shrunk almost 50% over the last five years alone. Canada has shrunk almost 30%. THAT is the Stealth Depression I have been warning about for more than five years.
The chart below illustrates the magic of compound interest. Note: this is based on the government’s official inflation statistics. Inflation calculation methodology began to be ‘cooked in the 1980’s and again in the early 1990’s. In other words the climb would be even steeper had they continued using their original (uncooked) calculation methods.
Whatever you could purchase with $100 CAD in year 1914, you have to spend $1,948 Canadian in 2010 to purchase more or less the some goods. And that’s based on cooked numbers. Using the real inflation rate you’d have to spend much more.
The American inflation chart looks even worse but it illustrates when inflation really took off; 1971, the year “Tricky Dicky” (President Richard Nixon) took the U.S. off the gold standard and forced the rest of the world to follow.
GDP shrinkage of 30% to 50% are startling numbers but they’re concealed by governments’ and the ass media’s smoke and mirrors, lies, deceptions, propaganda and fictitious statistics. Turn the above two charts upside down and they represent our incredible shrinking economies.
And it’s not just Canada and the U.S. that experienced rapid inflation and shrinking economies. Below, Australia, the UK and the Eurozone are almost identical as are ALL western economies; taking off after 1971.
In fact, the continuing melt-down of our economies can be seen in the government’s own numbers. The chart below is Stats Can (Canadian) bullshit inflation rate. Ignore the nominal percentages; they’re cooked. Instead, look at the over-all trend that indicates continuing economic melt-down.
How’s that for an incredible shrinking economy when even the government’s own cooked statistics are trending down.
The Financial Post reports that “Investment guru Jim Rogers has criticized Western central banks for understating the true inflation rate which he says is “certainly” at least 6 or 7%.”
Rogers says, “The U.S. government lies about it. Everybody who shops knows prices are up. Everybody except the U.S. government. And I wish we knew where they shopped so we could shop there too and get good prices.”
Inflation distorts so much. We’re told retail sales are limping along. In reality they’re plunging when real inflation is factored in. Wage and Social Security increases are tied in to the official inflation rate but the real inflation rate is shrinking our incomes. Just about every economic measure is far worse when you factor in the real rate of inflation. We are in a Stealth Depression disguised by phony government statistics.
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Stock Markets are Not Economic Indicators
Western economies are melting down and the only thing central banks and their stooge banksters can do is artificially manipulate the stock markets such as the DOW reaching a record high giving the impression of economic recovery. Don’t believe it. Zero Hedge recently did a report card on the U.S. economy comparing today’s economic conditions to October, 2007, when the Dow set its previous record high.
• Dow Jones Industrial Average: Then 14164.5; Now 14164.5
• Regular Gas Price: Then $2.75; Now $3.73
• GDP Growth: Then +2.5%; Now +1.6%
• Americans Unemployed (in Labor Force): Then 6.7 million; Now 13.2 million
• Americans On Food Stamps: Then 26.9 million; Now 47.69 million
• Size of Fed’s Balance Sheet: Then $0.89 trillion; Now $3.01 trillion
• US Debt as a Percentage of GDP: Then ~38%; Now 74.2%
• US Deficit (LTM): Then $97 billion; Now $975.6 billion
• Total US Debt Outstanding: Then $9.008 trillion; Now $16.43 trillion
• US Household Debt: Then $13.5 trillion; Now 12.87 trillion
• Labor Force Participation Rate: Then 65.8%; Now 63.6%
• Consumer Confidence: Then 99.5; Now 69.6
• S&P Rating of the US: Then AAA; Now AA+
• VIX: Then 17.5%; Now 14%
• 10 Year Treasury Yield: Then 4.64%; Now 1.89%
• USDJPY: Then 117; Now 93
• EURUSD: Then 1.4145; Now 1.3050
• Gold: Then $748; Now $1583
• NYSE Average LTM Volume (per day): Then 1.3 billion shares; Now 545 million shares
Look at stock markets another way. Above, I explained the extent of inflation. Gold and silver protect you against the loss of purchasing power caused by the insidious effects of inflation. Look at the stock market, not priced in devaluing dollars but priced in gold. It takes more worthless dollars to buy the same thing so the ‘nominal’ price of stock markets makes it appear they are reaching record highs. However, the DOW stock market (and all others) are declining when priced in REAL money: gold.
The chart above shows the DOW priced in dollars, gold and a few other interesting indicators. Compare the DOW in dollars and then to gold and you’ll see. Eric Fry sums it up like this. “Each of these metrics, in its own way, reflects a government that is “hard at work.” The fact that the Dow, priced in gold, remains very far away from a record, suggests that Chairman Bernanke is working overtime. His dollar-printing escapades have played a very big hand in the Dow’s record-setting climb. By devaluing the dollar, in other words, Bernanke “inflated” the Dow price.
“The doubling of both food stamp participation and drone strikes during the last five years reflects a different form of governmental hyper-activity. But this hyper-activity shares the identical DNA as Bernanke’s money-printing. All these activities express the genetic traits of a government that continuously expands its power ‘for the greater good,’ a government that believes its influence enables progress, rather than impedes it, a government that considers itself so essential to the march of human civilization that it will dehumanize any individual and sanction any uncivilized act to achieve its objectives….”
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Cyprus is a Sign of Things to Come
The ass media seems eerily quiet about Cyprus lately. They don’t want you to panic.
I WANT YOU TO PANIC!
Cyprus is proposing the theft of a portion of people’s bank accounts. I’ve already written about this last week in Bank Run Alert so I won’t repeat myself. If you haven’t read it, it’s only four pages.
The Cyprus bank account theft is a wake-up call to those of you who think it can’t happen here. In the first place, it already IS happening here. What do you think our zero interest saving rate is doing? It’s robbing savers. It’s estimated that U.S. savers are losing $400 billion every year that central banks keep interest rates near zero. What should have been a decent saving rate is being siphoned off to the sociopathic banksters to help bail them out of their worthless derivative assets. It’s NOT enough. $400 billion is a fart in a windstorm compared to hundreds of Trillions in worthless derivatives.
In the second place, it shows the continued deterioration of global economies and how quickly things are unravelling. According to Macleans March 25. “Brazil is a mess,” says Manuel Molano, adjunct-director of the Mexican Institute for Competitiveness … “China is decelerating, India’s growth has been stalled for three years, Russia is nothing special.”
Bank accounts were supposed to be protected by government insurance and now governments themselves are complicit in the theft of these bank accounts. It will spread. They’re already talking about doing it to Spain and it WILL spread from there.
Trust Zero Hedge to have a few choice words about the events in Cyprus.
“… the curtain has been pulled back and wizard revealed with all his faults and warts. The age of innocence is dead and with it died institutional and retail trust, confidence in the system writ large and the rule of law.
“It would be hard to over-emphasize how significant the Cyprus situation is. The EU demonstrated under no uncertain circumstances that they will destroy the rule of law to maintain their own power. It was a recognition of tyranny that many of us have always assumed was the case but yesterday became reality.
“So, of course, the powers that be in Europe must do everything in their power to prevent the world from noticing that their banks are broke. This means they will lie and take anything they deem necessary. Including the forceful seizure of savings accounts of innocent people. “
ALL governments are running out of options, not just European. They are stealing from their own citizens and the theft will increase and become more brazen. Confiscation is already happening in broad daylight.
There are two types of people:
1) Those who know it will happen
2) Those who refuse to believe it until it’s too late
Which one are you?
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If you’re Amerikan, you need to get your money out of the U.S. or, at the very least, out of the hands of the government. No country is safe but some are safer than others. Think this can’t happen in the U.S.? It already has happened in the past. Zero Hedge goes on to say, “In fact it has already been done before during FDR’s first 100 days in office. The template already exists. Electronic banking only makes the process that much easier.”
That means taking it out of banks and putting it under the mattress where it’s safer from insolvent banks and desperate governments. Simon Black of Sovereign Man says it well, “Insolvent commercial banks are backed up by insolvent government insurance agencies, funded by central banks that conjure money out of thin air.”
You’re not earning anything in interest and keeping it under the mattress makes it harder for the government to confiscate. I say “under the mattress” figuratively as you still literally need to find safer places.
If you’re wealthy get it out of the country. If you aren’t, then buy gold and silver or use money to buy stuff that you’ll need in future. Be prepared to pay a hefty premium buying gold and silver. The spread between the official price and the real price is increasing.
Pension plans are not safe anymore, either. Argentina is talking about confiscating pension plans and the Amerikan government is also running this up the flag pole. The reason they give is that people aren’t capable of making good investment decisions with their 401k so the U.S. government is talking about nationalizing pension plans. Since China and other countries have reduced their purchases of U.S. Treasury bonds, I suspect Amerikan pensions will end up in government bonds just as the bond bubble appears ready to burst. I’m reading a lot of Amerikan commentary (including Jim Sinclair) advising people to cash in their pension plans, take the tax hit and keep it out of banks.
On March 21, Jim Sinclair said
“I have told you repeatedly that you must exit the system and be your own central bank.
That means gold in your possession and control.
That means equities either as direct registration or certificated.
That means minimum deposits.
That means closing your retirement accounts regardless of the tax hit.
That means not planning your retirement considering either social security or retirement account.
That means forget retiring.”
This is serious, boys and girls. And, it’s going to get a lot more serious. For those of you who have been waiting for the shit to hit the fan; it just did.
By tomorrow, Monday, March 25, the Cyprus government has to come up with a plan. What they do, will go down in the history books. It WILL affect all of us.
Stay tuned.
Gerold
March 24, 2013
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Gerold's Blog 
Still find myself wondering every day… “what happens when big defaults start happening?”.
When governments like Cyprus say “no more”, when derivatives are revealed to be the illusory wealth that they really are, when debt/credit starts drying up, and when people start realizing how serious our energy situation really is…
The world seems to be awash with debt/credit, not dollar bills.
Were debt to decline rapidly, I’d think dollars would be worth quite a bit more as at the end of the day, the “aggregate prices” of the world all theoretically add up to all the money/debt currently in circulation. This applies to gold & silver as well, which may see their prices fall (though not as sharply as houses, stocks, consumer goods, etc.), as while we see gold & silver as “wealth” it’s still really just “stuff” which dollars/debt in circulation account for.
After serious deflation and massive debt defaults, desperate governments might start actually printing more money and circulating it freely. I would think shorty before that is the point to start worrying about inflation and start moving into hard assets like gold/silver, as circulating actual money (that, unlike debt, never has to be paid back) is what quickly leads to loss of faith in a fiat currency and rapidly increases the velocity of money as people try to spend it as quickly as possible to acquire more hard assets.
While relfecting on inflation/deflation over the past few months I did come to an interesting conclustion I’d be interested in getting your thoughts on Gerold – that regardless of whether we face inflation or deflation, necessary consumables are always a good bet.
Let’s use food as an example.
In the case of inflation, the devaluing of our dollar quickly increases the price of food and begins to push it out of reach, meaning people are forced to spend more of their (stagnating? declining?) wages just to have enough food to survive. Those who were wise enough to stock up on freeze-dried foods (they last 20-30 years if kept properly) will see the value of those goods rise due to increasing demand, and by the fact they won’t need to spend as much of their wages on food.
In the case of deflation, it is likely that firms within the food-producing industry will start to go under as consumers (stagnating? declining?) wages cannot allow them to be as extravagent with their purchases. Fewer dollars means that firms will need to be more competitive, and for a short while (now?) prices will be very low/affordable and it will seem like a time of plenty. However, as firms are eliminated, fewer firms will remain and oligopolies will be able to form at which point prices can rise and exaserbate the situation even further. Once again, owning freeze-dried foodstuffs that wer purchased when they seemed cheap/affordable would seem to be a good play as those goods can be resold at higher prices (yet still below overpriced foods being sold in a cornered food market), and/or save the owner from the ravages of increasing food prices.
Note that both examples ignore larger complexities like massive drought in the US, the fact that the food industry is subsidied by cheap oil (both production and transportation/distribution), government subsidies of food through the food stamp program, individuals’ ability to grow their own food, efforts of organizations like Monsanto to control the agro-industry through products like terminator seeds, etc. Given enough time and contemplation, someone could probably conceive how these issues would impact the above examples for better or worse.
Anyways, hopefully those were good examples to show how consumables will either be priced out of our reach or become scarce in an inflationary or deflationary outcome, respectively. One may consider making sure they invest in consumables (food, water, energy and energy-producing products, ammunition, etc.) before something like gold & silver.
Cheers,
-GBV
“Were debt to decline rapidly” – I don’t see how debt would decline rapidly without either paying it off (deleveraging takes a long time) writing it off (they need profits to counter the write down) or defaulting on it which they’re doing with inflation but that too takes a long time. When you look at over a quadrillion dollars in toxic derivatives – 20 times global GDP – it would take centuries to do all three. Instead, they’re trying to pretend as hard as possible for as long as they can. Complete collapse is what I see because we’re already circling the drain. I’m surprised it hasn’t happened yet but then there’s a lot of momentum in an economy and propaganda still works (for now) and people can be incredibly stupid and malleable over a long timeframe.
“After serious deflation and massive debt defaults, desperate governments might start actually printing more money and circulating it freely” – they’re already printing like mad and it’s not helping. Inflation should have taken off even more but lack of velocity is keeping a lid on it. The consumer’s dead broke. No spending, no velocity.
Jim Sinclair sees currencies collapsing 2015 to 2017 and a new global currency by 2020. I hope he’s right as it gives us more time to prepare but there’ll be a lot of pain along the way.
“Necessary consumables are always a good bet” – agreed. I highly recommend people invest in necessities like food and clothing before any disposable cash is converted to gold and silver. My priorities are in this order
1) Food – especially long term, long lasting such as freeze dried, preserved, frozen, pickled or canned (in that order)
2) Durable necessities – toilet paper, paper towels, tin foil, ziplock bags, garbage bags, tools, guns, ammo, water filter, etc. Lots of etc.
3) Sensible clothing and footwear
4) Silver coins
5) Gold coins
Analysts are divided and in a quandary whether we’re faced with an inflationary depression or a deflationary one. Personally, I get leery with either/or dilemmas because often life throws us a curve and we have both or the worst of both. I think we’ll continue seeing assets deflate and necessities inflate. Nothing goes in straight line forever but I don’t know when the trend will stop.
I don’t know at what point people lose faith in currency and the system in general. I read an article where a slim majority of Amerikans now distrust their government but I can’t confirm the veracity of the study. I expect desperate governments to continue doing more and more desperate things to save themselves at people’s expense but at what point does the shit hit the fan? I don’t know. I hope Sinclair’s right but I still think, given the trajectory I’ve been watching for more than five years, we’re spinning closer to the drain.
Cyprus is an interesting example of unelected bureaucrats destroying the sovereign nation albeit a quasi-nation. But, don’t they always pick off the weakest first the? They use it as a test, and if they get away with it they ramp up their efforts. Fortunately, the little people kicked up a fuss so they hit the so-called rich (Russian oligarchs). What the media don’t tell you is the rich pulled their money out already. Cyprus banks have overseas branches (including the UK and Russia) that are not closed so the rich extracted Cyprus accounts through them.
Often, though they are effective. They hit poor defenceless Kenya with carbon tax. Now they can say, see, it works.
Stay tuned. It’ll get more interesting and stupid.
“I don’t see how debt would decline rapidly without either paying it off (deleveraging takes a long time) writing it off (they need profits to counter the write down) or defaulting on it which they’re doing with inflation but that too takes a long time.”
Defaults are much, much quicker than you give them credit for. If you lend me $50 and I say “sorry, can’t pay you back” – it’s gone. You can try to get blood from a stone (i.e. sell off the debt to collectors for pennies on the dollar so they can come after me and perhaps break my knees), but if I really am broke than it is silly to expect that money to be recovered.
So far we’ve seen more of the other solutions you suggested, like inflating our way out of the problem (only a temporary solution at best). And to some degree you’ve actually seen people paying off some of their debts as well. But I think when people start defaulting en masse (i.e. when there is no more credit left and people have ran whatever credit they do have up to the limits just to meet their day-to-day expenses) people will really start to understand what deflation looks like and what it is capable of.
Don’t know much about Jim Sinclair, but I know he’s considered to be a bit of a gold bug. Nothing wrong with having gold… assuming you’re rich enough to never have to sell it. For me, the consumables you outlined seem to be the smart play, as well as US dollars for reasons presented here by Charles Hugh Smith:
http://www.oftwominds.com/blogmar13/dollar-higher3-13.html
Cheers,
-GBV
As always Gerold amazing insight and a straight to the point article.
The Truth is becoming harder and harder to find.
I for one sincerely appreciate your honesty and knowledge.
Thank you, Ken. Your comment humbles me and reinforces my determination to carry on.
You’re right; in a world engulfed in propaganda and hogwash, it’s a challenge to cut through the ass media’s BS.