muses of the moment

September 16, 2011

John Williams

John Williams has released a new commentary. You pay for the good stuff, but here is the punch line (and it ain’t funny):

Consumer Inflation at Three-Year High 
– August’s Annual Inflation: 3.8% (CPI-U), 4.3% (CPI-W), 11.4% (SGS)
– “Core” Inflation Jumped Again with Some Acceleration
– Real Retail Sales Fell 0.3% in August
– August’s 0.2% Production Gain Was a 0.1% Loss Against Initial September Reporting

Real inflation rate is scary! Savers in retirement are totally screwed. Earning, if they are lucky, a 3-4% return, but expenses are up 11.4%. Healthcare is probably higher. That’s an 8% gap.

How in the world is a consumer-based economy going to grow long-term, when the main consumers (boomer and retiree) are losing money on their savings, living expenses are rising monthly, and they are not working again in their life time?

Global printing of fiat currencies can not be contained to the country that started it, so it will be hard to drain. The Fed’s goal of printing money to raise asset prices will backfire into higher consumer prices. And, voila….real inflation is at 11.4%.

This is not going to end well.

On the bright side, as long as you can work for your current living expenses, your savings stored in physical precious metals will eventually met the true inflation rate. Groovygirl and others use John Williams inflation-adjusted prices of gold and silver to determine if gold and silver is cheap or expensive. We do this because the last time gold and silver hit highs in the late 70’s and early 80’s, they were actually meeting the inflation-adjusted cost of the dollar at that time.

According to Mr. Williams the inflation-adjusted dollar price of gold should be $8,639 and silver should be $503 per oz. They are super cheap. The ups and downs in the prices are just noise and an opportunity to buy to hold long-term.

Retail sales look like they are heading for another downturn.

The M3 (money supply stat that the gov stopped issuing) is still contracting, signally what most economists are now acknowledging: we are in a downturn, not a recovery.

Mr. Williams is just waiting for the dollar dumping to start, which will signal a hyperinflation. A hyperinflation is an extreme increase in consumer expenses and a severe depression in debt. We are already heading down this road, we just have not come to the cliff yet.


1 Comment »

  1. Louis,

    You are correct, people are not panicked. Groovygirl finds this strange, but not surprising. The same thing happened in Germany prior to the Wiemar Hyperinflation. The very unfortunate thing: it is in the last 4 months of a hyperinflation trend in currency that people get wiped out. If you realize 4 months out that you need to move money, it is too late. By that time, safe haven are expensive and capital controls are well established by government.

    Thanks for your comments, Louis.


    Comment by totallygroovygirlfriday — September 16, 2011 @ 12:25 pm

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