Gold News

Inflation in Spades

In 1971 the US imposed price controls because inflation was a little over 4%, just as it is today...

LAST WEEK proved a bad week from start to finish, writes the Mogambo Guru for The Daily Reckoning, what with bonds selling off so much that – according to Barron's magazine – "the yield on the two-year Treasury, which moves opposite its price, had the biggest weekly rise since 1982."

   This means that the price of bonds went down, and went down fast!

   Think of it: trillions and trillions of dollars in bonds, and even more bonds all around the freaking world, all impacted by these huge sudden losses, the biggest move in 26 years.

   Maybe this had something to do with the latest inflation figures from the Bureau of Labor Statistics, from which we learn the ugly news that, un-adjusted, the US Producer Price Index for Finished Goods increased in price by 7.2% in May.

   At this rate, prices will double in 10 years. This is inflation in spades!

   The door to the Bunker De La Mogambo (BDLM) automatically slammed shut at such terrible inflation news, accidentally trapping me outside and leaving me feeling very vulnerable. And I was so busy trying to claw my way back inside that I almost missed the news that producers of Intermediate Goods raised prices by 2.9% in May, which seemed a relief after that 7.2% Finished Goods report, but which didn't last a second before I read that the Crude Goods index increased 6.7%.


   But lest you be misled by the fact that inflation is eating us alive, the new "official" rate of annual inflation from the government's wonks is 4.2%, which makes me laugh at the incongruity of the new BLS figures in relation to this.

   Hell, John Mauldin of reminds us that 3% inflation was once considered so bad (and it is so bad) that "President Nixon instated price controls on the 15th of August, 1971 [because] inflation was a little over 4% at the time."

   This terrifying news of rising inflation and rising bond yields had the curious effect of producing a sort of fight-or-flight reaction in the Mighty Manly Mogambo (MMM). First I start involuntarily crying like a baby, screaming my guts out in fear and anger, and clutching my chest in agony as my heart starts pounding, pounding, pounding, because the world is chock-a-block full of "black boxes" that have mysterious algorithms and equations to dictate buying and selling.

   And every single one of these computers is now looking at the higher consumer prices and higher yields on Treasury bonds, and factoring them into the implied yields/returns of their various investment options – such as common stocks – and suddenly stocks and everything else look like the proverbial crapola.

   And that explains a graph from the Federal Reserve, courtesy of BNP Paribas Economic Research, forwarded by Junior Mogambo Ranger (JMR) Phil S., showing the terrible news that growth in household real estate assets and growth in their financial assets have both plunged to literally zero!

   Zero! The chart goes back to 1960, and it has never, ever happened before!

   In fact, the latest report shows that the combined net worth of all US households is $56 trillion, which is less than the $57 trillion accrued federal government's liabilities, meaning that we are technically bankrupt.

   So with wages stagnant, prices rising dangerously, government spending out of control, Federal Reserve creation of money and credit out of control, debts of every kind at record levels, now we get a net loss in household wealth.

   My God! And you think that we're not freaking doomed? Hahahaha! Thanks, I needed a laugh.

   You have two choices. For one, you can Buy Gold or silver and watch in delight as it goes up in price as the value of the Dollar and all other phony money goes down. Then you can make delighted squealing noises ("Wheeeeee") as you wax rich.

   Or you can not Buy Gold or silver, thus reducing demand and making it cheaper for me to buy your share – for which I say thanks! Then sit back and watch in horror as the purchasing power of your precious dollars and dollar-denominated assets go down and down, making the cost of living go higher and higher, month after month, until it reaches a crescendo and everything collapses in chaos and brutal mayhem, after which things really get really, really bad.

   It's nice to have a choice, eh?

The angriest guy in economics, the Mogambo Guru is Richard Daughty, general partner and COO for Smith Consultant Group, serving the financial and medical communities. The Mogambo Guru economic newsletter – an avocational exercise to heap disrespect on those who desperately deserve it – has been quoted frequently in Barron's, The Daily Reckoning and other fine publications.

See the full archive of Mogambo Guru articles.


Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn



Market Fundamentals