On Tuesday, I published what I viewed as “THE MOST IMPORTANT ARTICLE I’VE EVER WRITTEN.” In it, I demonstrated how not some, but ALL global currencies have plunged against “King Dollar” since mid-2011. That is, since the Fed announced its most aggressive MONEY PRINTING exercises to date – September 2011’s “Operation Twist,” September 2012’s “QE3,” and December 2012’s “QE4.” The Fed’s goal was to create growth via inflation of financial assets; coupled, of course, with a maniacal PPT that spends every nanosecond entering S&P 500 buy orders. Simultaneously, these ‘government agencies’ encouraged reckless margin borrowing and real estate speculation; while dramatically increasing their own portfolio’s risk with long-duration Treasury bonds – at ALL-TIME HIGH prices, with essentially ZERO global buyers.
Since then, the Dow has risen by a measly 30% – and less than half of that in REAL terms; whilst the cratering Treasury market is back where it started. As for the U.S. economy, REAL GDP has been flat at best; labor force participation is down nearly a full percentage point; 1.5 million people entered the Food Stamp program; 1.2 million are officially “disabled”; and the average incremental job has been a part-time, minimum-wage paying, non-benefit receiving position as either a waiter (sorry, “server”) or bartender.
Meanwhile, the global economy is dramatically weaker across-the-board; whilst DEBT of all kinds has grown parabolically – starting with the U.S. national debt itself, up from $14 trillion in mid-2011 to more than $17 trillion today. In other words, aside from the handful of bankers privy to the Fed’s FREE money, market support, tax loopholes, and inside information, NO ONE has benefitted from the TRILLIONS of dollars printed; let alone, those “manufactured” by Japan’s “Abenomics”; Europe’s “LTRO” and “OMT” mechanisms; and the other 500+ interest rate reductions (i.e., MONEY PRINTING) of other Central banks.
Conversely, EVERYONE has been harmed by the inflation generated by such monetary lunacy; and as noted in my “MOST IMPORTANT…” article, I do mean EVERYONE. That is, while the U.S. cost of living rose in nearly all relevant categories – including “hidden taxes” like plunging full-time employment demand due to Obamacare; the ENTIRE WORLD experienced its strongest inflationary surge of the decade. Not a single currency was spared – per the below chart; particularly in the “FRAGILE FIVE” nations I wrote of yesterday, such as the MASSIVE population centers of India and Indonesia. Many of these nations rank among the world’s highest in percentage of income spent on food; and thus, it should be no surprise we have witnessed widespread social unrest – and WAR – in places as diverse as Egypt, Turkey, and Brazil…
Left out of these calculations were the United States – comprising roughly 5% of the world’s population – as one cannot measure how the dollar performed against itself; and China, comprising 19% of global population. According to John Williams of Shadow Stats, U.S. inflation in the past years was closer to 16% than the roughly 4% reported by its government; while in China, it is nearly impossible to gauge this figure given its government’s recent ADMISSION that most economic data is ‘unreliable.’ Said statistics rate inflation at anywhere from 3% to 5%; but of course, all items are not equal. As noted in my travelogues last month, Chinese gasoline – for example – is heavily subsidized; and thus, it’s quite difficult to give a single figure for the level of overall inflation. My guess is it’s running somewhere in the 5% range; but again, that’s just a “guesstimate.”
Irrespective, when adding the 24% of the world’s population living in the U.S. and China, the above calculations incorporate 86% of the global total; and as noted earlier this week, it should be crystal clear that the “other 14%” of fourth-tier economies experienced at least the same inflation rate as the average. Thus, If China’s current inflation rate is indeed 5%; the “other 14%” is similar to the 62% noted above; and – per John William’s calculations – U.S. inflation is running at 8%; the population-weighted inflation rate for the ENTIRE WORLD’s population is around 9% over the past six months, and 18% over the past two years. Remember, this data is not measuring EXACTLY how much money was printed; how fast the economy expanded – or contracted; or the velocity of said money. Simply put, it is the rate of inflation of the COST OF LIVING caused by said monetary policy.
Back to China, its REAL inflation rate remains a big piece of the puzzle; as the higher it’s running, the more vulnerable the world’s richest nation has been to its controversial “pegging” of the Yuan to the dollar. Such policy certainly contributed to China’s MASSIVE gains in manufacturing market share over the past decade; not to mention, significant retail profits given how “cheap” its products were to the artificially supported dollar. However, the “price” of suppressing the Yuan was the inflation it engendered for its own citizens; which is not surprisingly, are paying FAR MORE for retail items than foreigners.
My travels revealed that at the lowest end of the market – for food, cheap gee-gaws, and the like – prices were low by Western standards. However, once you step up to the middle and upper levels of the market, prices were dramatically higher; such as for i-Pads, which currently are priced nearly 25% higher than in America, and hotels like the Holiday Inn I stayed at. For the record, my sense was that the “low end” of the market may enjoy itself some of the aforementioned government subsidies – so as to keep the masses at bay; but frankly, there is no way of knowing. However, what I do KNOW is that China sold more U.S. Treasuries in June than in any single month EVER; and given what rates have done since, methinks the July and August numbers will be equally ugly. If that is the case, many will speculate the Chinese government is “paying for” these subsidies with depreciating Treasuries; and if so, the rate of such “payments” may well dramatically increase in the coming years.
This morning, my “inflation suspicions” were validated by the following article – China’s not so Hidden Inflation; citing how retail prices in China are not just higher for i-Pads, but essentially ALL retail items. In some cases, the discrepancies are so wide, Chinese consumers are simply avoiding local shops entirely. Not to mention what is going on in its still inflating real estate bubbles; where in cities like Beijing, Shanghai, and Guangzhou, prices exceed those of Manhattan and London – at nearly twice the 2008-09 levels. In other words, the aforementioned “guesstimate” of 5% Chinese inflation is likely woefully low, making my six-month and two-year global inflation estimates of 9% and 18%, respectively, low as well.
With no end to the global MONEY PRINTING group in sight – and major Central banks like the Fed, ECB, and BOJ committed to “ZIRP” policies indefinitely; how can ANYONE anticipate global inflation to do anything but accelerate in the coming years? Moreover, how can ANYONE not anticipate an increase in the record low money velocity the current global DEPRESSION has engendered?
Anyhow, I think I’ve made my point about the catastrophic global inflation engendered by the post-2008 Central bank MONEY PRINTING spree; but particularly the “last ditch” efforts attempted in the past two years. Unfortunately, such policies are the defining characteristic of fiat currency Ponzi schemes; as they simply CANNOT be “tapered” without tragic near-term ramifications. The longer they go on, the greater the inflation rate; and based on centuries worth of empirical data, there is no possible alternative to the inevitable currency collapse we are staring at.
If such analysis does not inspire you to even consider protecting your assets with REAL MONEY, I’m not sure what will. However, if it does, I think you KNOW what I say is true; and thus, that you MUST…