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Newsletter November 2014

In Touch Financial
“Experiencing Success One Good Idea at a Time”

INFLATION

Once President Nixon abandoned the gold standard in 1971, the government was no longer restrained in its money printing. Every year, the amount of money created increased. This is happening at an accelerated rate. Ironically, the amount of money lost over the last few years has been exceeding the amount created. Why is that? Money is being spent on war material which is destroyed in use. Many are losing their jobs. Losses in financial bubbles have been immense, despite the fact that the stock market has been recovering of late. It is likely we are in the greatest deflationary depression in the history of the world. Don’t be fooled. At present, the price of essentials like food and clothing are rising for reasons other than inflation. As an example, weather and the use of corn for fuel both contribute to increased costs but are unrelated to inflation. These increases relate to the law of supply and demand.

However, newly created money has to go somewhere. Over the last few years, this money has gone largely to stocks, bonds, and real estate. Low-interest rates have encouraged an increase in borrowing, both by the government and by corporations who are using this cheap money for acquisitions. All of these developments are properly called bubbles. Other bubbles are possible. These bubbles may include wages, energy, food, and commodities. These bubbles could also include collectible art and college tuitions. As the prices of stocks, bonds, real estate and other items grow at an increasingly rapid rate, you can understand there is no economic growth driving these prices. These developments are bubbles. At some point, bubbles break. It is quite likely that we will soon have another crash in the stock and bond markets, as well as in the real estate market. This crash is likely to be greater than any crash the world has ever experienced in the past. Such an event would result in further deflation.

The Japanese have been in a deflationary depression for approximately 25 years now. Despite the enormous increase in their money supply, prices have barely budged, and interest rates have remained low. It is likely that we may continue to experience a similar situation in America. These conditions could continue for a number of years. The next few years are a critical time to accumulate as much cash as possible for use to protect ourselves in emergencies, including the inflation that will come some day in the future.

Eventually, new money created by the Federal Reserve will be funneled through the banks and lent out into the economy. Banks are the major source of inflation since every dollar deposited into savings becomes ten dollars lent to borrowers. That is one reason why the banks are so vulnerable to a potential future collapse. When banks multiply a dollar by ten and lend out those ten dollars, they have turned a simple loan into a dangerous gamble.

It is important to understand that the Federal Government relies heavily on the Federal Reserve to create the money they need for all their handouts and to conduct wars. These things are expensive and can never be paid for by taxing the public. Neither the bankers, who are protected by the Federal Government, nor politicians who spend the money, ever expect they will be required to pay the price for their insane spending spree and the related money creation for which they are all responsible.

The late Senator Kennedy once said, “We won’t be here to deal with the problem. Somebody else will have to deal with it.”

Sooner or later the increase in the money supply will result in inflation. A wise investor named Marc Faber has long anticipated a dramatic inflation that would probably explode worldwide. Such an event reduces the value of currency. He made the comment that “Panics do not destroy capital. They just reveal the extent to which it has been destroyed already by bad decisions”.

I don’t intend this information to be discouraging. I am simply providing it as a way to keep you informed about developments in politics and the economy so that you will not be blindsided by future events.

As clients, you are doing all the right things to protect yourselves now. In the future, you should be in the position to move quickly, if necessary, to take full advantage of the many opportunities which will present themselves as circumstances change.

It is critically important to have plenty of money available prior to the advent of inflation. Before inflation hits, you will be able to use the cash you have accumulated to protect your buying power and take full advantage of opportunities.
Let us help you prosper now and protect yourselves in the future. Contact us and recommend the people you care about to do the same.

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