Yesterday afternoon, Susan and I went to see Zero Dark Thirty. We loved the movie. It’s amazing what the affect of just ONE dedicated person can be. One never-say-die lady was responsible for finding and killing Osama bin Laden. Every one of us can make a difference.
After the movie, we had dinner with David Young, a musician friend we met here in Miami last year. Somehow the conversation turned to the economy and he said, “I am a pretty good judge of the economy. Last year I traveled to a different city on 40 weekends. Business is way off, and has been falling for a long time.”
David sells spiritual music that he plays on the flute, the kind you would hear in a SPA or elevator. He produces his own CDs and he sells them at art shows and to small retailers. He has witnessed, first hand, the decline of the “small business” in America. He used to sell to 3,000 small shops and now he has less than 100. These small businesses were the backbone of the US economy, so he is keenly aware of the decline of our Middle Class. He met Harry Dent on a cruise and was impressed with what he had to say.
That’s when the discussion got interesting.
For those of you who don’t know much about Harry Dent, he also talks about the collapse of the Middle Class, and America, but he says that we are heading toward a deflationary collapse, and therefore he says the best protection is to stay invested in the U. S. dollar. (In a Depression, cash is king)
I told David Young that I agreed that the Middle Class has been decimated. Susan and I both experienced it first-hand, back in the mid-70s. Susan was a rep for several women’s clothing lines and she traveled Minnesota, Iowa, western Wisconsin and North Dakota. Her accounts were small rural specialty shops. One by one, those small rural specialty shops closed their doors. They were being run out of business by a new breed of competition; the discount store. Target, Walmart and Kmart were taking away their customers.
In those days, I worked for Champion (Rochester, NY) selling imprinted sportswear and custom-made athletic uniforms to the schools in Minnesota and western Wisconsin. Champion manufactured their gym uniforms, sweatshirts, and athletic uniforms in Lavonia, NY and in North Carolina. By the late 70s, Champion was closing down all of their clothing factories and buying from overseas. Today, Champion is totally out of the schools and sells t-shirts, sweatshirts, socks and underwear only to large retailers like Target, JCPenney. Walmart, etc. and all of their clothing is manufactured outside of the United States.
So, I agreed with David Young’s assessment that the middle class in disappearing, but I strongly disagreed with Harry Dent’s views that we are headed toward a deflationary depression. No, I said, we are more likely headed toward a hyper-inflationary depression, a view I share with John Williams and Gerald Celente.
David Young focused on falling prices (his CDs) due to the “Walmart” affect. His specialty stores sold his CDs for $20 and the discounters were buying them from China and offering them at less than half the price. The big discounters and the internet were responsible for cutting profits, lowering prices and killing off small business throughout America. He is correct. His conclusion, and Harry Dent’s is that falling DEMAND and lower prices are deflationary. They can be. But that’s where Jim Sinclair’s “currency-induced, cost-push-inflation” comes into play. Not demand-pull, but cost-push! In other words, prices will rise not due to more demand, but due to a debased currency that buys less. Does this sound a bit like QE-to Infinity to you?
Check out what is happening to money creation (QE) in Japan. Richard Russell, Jim Sinclair and Monty Guild discuss what is going on in Japan & the US and you can quickly add Europe, China and the BRICS to the list as well. The industrialized world is fighting a currency war. The ammunition you stock up on in a currency war is YOUR CURRENCY. They are your bullets. The more you print, the less the currency is worth, the cheaper it becomes and the greater your trading (exporting) business becomes. But when we do it, it fosters global inflation, since the dollar is the world’s reserve currency (at least for now).
After my discussion, I think I David understood why “things” will rise in price. We can thank Alan Greenspan and Ben Bernanke’s easy money, low-interest rate policies (to infinity) for that. We are “exporting” some $600 billion dollars a year over seas (trade deficit) and the dollars over there are used to buy food, oil, copper, and all the commodities and that are driving up the price. The “demand” is a result of massive dollar inflation, here and abroad. There are more dollars floating around, creating more demand.
Arab Spring was not about a desire for “Democracy.” It was about an empty stomach. The average daily wage in the Mid East runs something like $2 a day and most of it goes toward food. When our dollar-debasing caused the price of commodities to rise (commodities are denominated in dollars), they no longer had enough money left to feed their families. That’s when people pour into the streets with their empty stomachs and their anger.
I wonder what will happen when our “welfare state” no longer provides enough money (unemployment, Social Security) to feed our people. If you are on a fixed-income, the rise in prices (currency-induced, cost push, not demand pull) will be impossible to navigate. What do you give up? Food? Shelter? Medicine? Do you think there is any correlation here between the potential problem I am discussing and US Government agencies stockpiling ammunition (most recently including the Social Security Agency – 174,000 bullets – and Homeland Security – 1.4 billion rounds of ammo), and the joint government/local police training exercises seen recently here in Miami, LA and in Houston? I’m hoping this is a stretch, but…