The Inflation Predictions Were Just Wrong, And Now They're Hurting People

Business Insider ^ | 06/21/2013 | CULLEN ROCHE, PRAGMATIC CAPITALISM

[SeekAndFind]

Remember back when QE started and we saw charts of high powered money going vertical all over the place and everyone who didn’t understand modern banking said that the reserves would flood out into the economy causing high inflation or even hyperinflation? And do you also remember how most of those same people also said that the only way you’d be able to protect yourself from this hyperinflation was by owning hard assets like gold or silver? Well, the inflation never came.

The most recent reading of 1.7% pretty much proves that we’re much more Japan than we are Weimar (and yes, even independent gauges confirm the low inflation story). And now the portfolio recommendations are falling apart as well….

It’s one thing to be wrong about the way banking works and the way inflation might spread. But most of these people were explicitly recommending a substantial overweight in gold and silver as well. And they’ve been annihilated in recent years.

Gold is down 33% from its 2011 highs. And silver is down a staggering 60% since the time I started referring to it as a bubble. These are massive moves and if you’ve been substantially overweight these metals in your portfolio then you’ve experienced substantial pain based on sheer misunderstandings by people who are posing as experts.

[elk]

I ask: what is the price of arugula?

That's all we need to know.

Until the price of arugula goes up dramatically, the chattering class will have no idea what the "other half" Joe six-pack is dealing with.

[Dave346]

It’s not so much that they were early - what happened is the government has been heavily manipulating gold / silver down over the last couple years when all indicators are it should’ve gone up.

The inflation is all there - they’re just hiding it as long as they possibly can.

[ssschev]

bflr

[volunbeer]

I agree with what you wrote above. I would suggest two other things are relevant to this discussion.

1 - Financial folks - especially investment advisors - are more concerned with investment instruments and the influence of inflation on making money using different vehicles. Most of us are more concerned with making our bills and feeding our families. This has created a disconnect in what most of us see with our own eyes and what we read in the financial media. They say no inflation because they don’t measure the price of groceries and necessities - we see inflation because we measure it by things we know - milk, eggs, our favorite meal at a restaurant, or a bag of chips.

2 - While I agree with your assessment that we seem to be stuck in a long term recession there is an inevitability as long as the government fails to slash it’s spending in half and as long as the Fed continues to pump money into the financial markets - inflation. It will happen eventually because you can’t continue to borrow and print dollars without creating inflation. The dollar has unique status, but ultimately that status is backed by the faith of other nations that a dollar is worth something. That faith is crumbling due to our irresponsible behavior and we will see more nations/markets demanding more dollars for the same products such as oil and coffee. Continuing on this course will result in the dollar losing it’s special status and we will be in a world of hurt. I don’t see any way we can avoid this given our current leadership and direction so the only thing left to argue about is “when” instead of “what” and will it be gradual or sudden. We only control our destiny with the dollar if our leaders can behave responsibly.

[jimpick]

Like I said I bought lumber this year and last.

Last year a 2X4 stud was $1.99-2.25.
This year it is $2.80-3.29.

These numbers added together and divided by 2 give a price rise of $0.92. Or just about a %50 increase in price.

Wages do not have to go up for inflation to happen. Nixon caused inflation in the 70’s when he put wage controls into force. True this was caused by a shortage of supply, but prices went up with out wages going up.

[Venturer]

I believe the author of the article is lying

Yes : But he is a Democrat and that makes it ok.

[xzins]

Even moderate inflation will wreck this economy. A debt payment of 300 million, if inflation doubles becomes 600 million, and if it triples (7%), it becomes a trillion.

I remember being taught that one should count on inflation averaging about 6%.

Hyperinflation will start a depression or something worse, whatever that might be.

[mjp]

said that the reserves would flood out into the economy causing high inflation or even hyperinflation?

The goobermint has to lie and keep the official inflation rate low in order to keep the cost of living increases of social security payments low.

[CodeToad]

This is all a setup to collapse the economy so that Communism can be offered by Obama and his follow commies as the answer.

The collapse is immanent. Interest rate will skyrocket, housing will collapse, stock market will collapse, yet the bond market will also collapse as it was sold at 0% interest and cannot be refinanced.

That giant sucking sound is the federal government sucking in all the money and power.

[E. Pluribus Unum]

Hyperinflation will start a depression or something worse, whatever that might be.

Thinks Brazil in the 'eighties and early 'nineties, or Bosnia in 1992-1993.

[MCH]

There is the rub. Taxes are up. Prices for essentials are up, but you can still get a lot of flat screen TV for your money.

The modern technological equivalent of bread and circuses, with the added advantage that it brings non-stop elitist propaganda into your home if you're dumb enough to tune in.

[Mr. Jeeves]

We are seeing price increases in certain categories due to idiotic government policy in an overall deflationary environment.

Hyperinflation is something different - it's a loss of faith in a country's fiat currency.

[cuban leaf]

The modern technological equivalent of bread and circuses, with the added advantage that it brings non-stop elitist propaganda into your home if you’re dumb enough to tune in.

---

HA! I’ve said for many years that we are in the Bread and Circuses phase. :-)

And the last part of your sentence covers why I dumped TV in 1997. :-D

[Wyatt's Torch]

Here is Gasoline CPI. The increase started coming out of the 2000-2001 recession. It can also be very volatile which is why it is often excluded from CPI as you can have wild swings both ways (look at the massive drop in late 2008):

[Wyatt's Torch]

Excellent post.

[RipSawyer]

“When was the last time this writer went to a grocery store, out of touch much!!!
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I am 69 years old and have lived in South Carolina all that time except for 3 years in the Navy and a year in North Carolina. I was amazed when I realized that groceries had become so expensive that it was possible to haul $100. worth in a large station wagon. I was amazed again when I realized you could pack a hundred worth in a large sedan. I was amazed when I realized you could pack a hundred worth in the TRUNK of a large sedan. I was amazed again to realize you could pack it in one grocery cart. I was amazed again when I realized I could lift a hundred dollars worth. I was amazed again to realize I could carry that much with both arms. Again I was amazed to realize I could carry that much on ONE arm. NOW MY SIXTY ONE YEAR OLD WIFE WHO IS DRAWING DISABILITY FOR HER MANY AILMENTS CAN CARRY A HUNDRED DOLLARS WORTH OF GROCERIES!!!!! Anyone who thinks there is no inflation is out of touch with reality. Anyone who believes the official government figures is an idiot on a par with Joe Biden.

I know whereof I speak, born during WWII I have seen the transition from when a hundred dollars worth of groceries would fill the bed of a pickup truck with side planks to now when an old lady can carry a hundred dollars worth. I hope I am getting my meaning across to some of the younger folks.