The Fast Track From No Inflation to Runaway Inflation

This post The Fast Track From No Inflation to Runaway Inflation appeared first on Daily Reckoning.

Today’s environment is drastically different than it was in the late ‘70’s and early ‘80s when inflation was nearly out of control. Today, disinflation is the primary challenge central banks face, not inflation.

It’s impossible to imagine another Volcker today. Today’s markets depend on the artificially low interest rates that the Fed’s been generating since 2009.  Raising interest rates would devastatingly pop the asset bubbles in stocks and elsewhere.

Remember how markets revolted against the possibility of further rate increases last December, when rates were still under 3%? Imagine 20% interest rates.

But the problems in the economy today are structural, not liquidity-related. Federal Reserve officials have of course misperceived the problem. The Fed is trying to solve structural problems with liquidity solutions. That will never work, but it might destroy confidence in the dollar in the process.

Fiat money can work but only if money issuance is rule-based and designed to maintain confidence. Today’s Fed has no rules and is on its way to destroying confidence. Based on present policy, a complete loss of confidence in the dollar and a global currency crisis is just a matter of time.

Consumer price inflation has remained persistently low, despite the Fed’s best efforts. This has led many people to ask where the inflation is, because the Fed has created trillions of dollars since the financial crisis.

But there has been inflation. It’s just been in assets like stocks, bonds, real estate, etc. The market’s back to record highs again, in case you haven’t heard.

The bottom line is, we’ve seen asset price inflation, and lots of it, too.

But the question everyone wants to know is when will we finally see consumer price inflation; when will all that money creation catch up at the grocery store and the gas pump?

The Fed is aiming for sustained 2% inflation. But it’s proven extremely difficult to accomplish.

Personal consumption expenditures (PCE) is the core price deflator, which is what the Fed looks at. Currently, it’s stuck below 2%. It hasn’t gone much of anywhere. But the Fed continues to try everything possible to get it to 2% with hopes to hit 3%.

But the reason the Fed has struggled to attain its goals is that inflation is not purely a function of monetary policy. It’s a partial function of monetary policy. Psychology is the other factor.

Milton Friedman had a famous quote, that inflation is always and everywhere a monetary phenomenon. But it’s not really true.

Inflation is also a partial function of behavioral psychology. It’s very difficult to get people to change their inflation expectations after a trend has continued for a long time. So it’s very hard to raise inflation from under 2% to 3%.

But once it does, a psychological shift could occur, and it could lead to expectations of further inflation to come.

That’s because double-digit inflation is a non-linear development. What I mean is, inflation doesn’t go simply from 2%, to 3%, to 4%, to 5%, etc.

Inflation can really spin out of control very quickly if expectations change. In other words, it can gap higher very quickly. Inflation can go from 3% to 5% to 7% or more fairly quickly. Double-digit inflation could quickly follow.

So is double-digit inflation rate within the next five years in the future?

It’s difficult to say exactly. But it is possible. If it does happen, inflation will likely strike with a vengeance.

Please understand, I am not forecasting it. But if it happens, it would happen very quickly. We would see a struggle from 2% to 3%, and then jump to 6%, and then jump to 9% or 10%.

Everyday people would be the greatest casualties.

Central bankers try to use inflation to reduce the real value of the debt to give debtors some relief in the hope that they might spend more and help the economy get moving again.

Of course, this form of relief comes at the expense of savers and investors who see the value of your assets decline.

It’s part of what I call the “money illusion.”

Money illusion has four stages. In stage one, the groundwork for inflation is laid by central banks but is not yet apparent to most investors. This is the “feel good” stage where people are counting their nominal gains but don’t see through the illusion.

Stage two is when inflation becomes more obvious. Investors still value their nominal gains and assume inflation is temporary and the central banks “have it under control.”

Stage three is when inflation begins to run away and central banks lose control. Now the illusion wears off. Savings and other fixed-income cash flows such as insurance, annuities and retirement checks rapidly lose value.

If you own hard assets prior to stage three, you’ll be spared. But if you don’t, it will be too late because the prices of hard assets will gap up before the money illusion wears off.

Finally, stage four can take one of two paths.

The first path is hyperinflation, such as Weimar Germany or Zimbabwe. In that case, all paper money and cash flows are destroyed and a new currency arises from the ashes of the old. The alternative is shock therapy of the kind Paul Volcker imposed in 1980.

In that case, interest rates are hiked as high as 20% to kill inflation, but nearly kill the economy in the process.

Right now, we are in late stage one, getting closer to stage two. Inflation is here in small doses and people barely notice. Savings are being slowly confiscated by inflation, but investors are still comforted by asset bubbles in stocks and real estate.

That’s why you should begin to buy some inflation insurance in the form of hard assets before the Stage Three super-spike puts the price of those assets out of reach.

This is why having a gold allocation now is of value. Because if and when these types of development begin happening, gold will be inaccessible.

I’m on record predicting that gold will go to $10,000 an ounce. To this point, I am often asked, “How can you say gold prices will rise to $10,000 without knowing developments in the world economy, or even what actions will be taken by the Federal Reserve?”

Well, the number is not made up. I don’t throw it out there to get headlines, et cetera. It’s the implied non-deflationary price of gold. Everyone says you can’t have a gold standard, because there’s not enough gold. But there’s always enough gold, you just have to get the price right.

That was the mistake made by Churchill in 1925, as described above. The world is not going to repeat that mistake. I’m not saying that we will have a gold standard. I’m saying if you have anything like a gold standard, it will be critical to get the price right. Paul Volcker said the same thing.

The analytical question is, you can have a gold standard if you get the price right; what is the non-deflationary price? What price would gold have to be in order to support global trade and commerce, and bank balance sheets, without reducing the money supply?

The answer, based on today’s money supply, is $10,000 an ounce.

The now impending question is, are we going to have a gold standard?

That’s a function of collapse of confidence in central bank money, which we’re already seeing. But monetary resets have happened three times before, in 1914, 1939 and 1971. On average, it happens about every 30 or 40 years. We’re going on 50.

So we’re long overdue. Got gold?

Regards,

Jim Rickards
for The Daily Reckoning

The post The Fast Track From No Inflation to Runaway Inflation appeared first on Daily Reckoning.

The Fast Track From No Inflation to Runaway Inflation

This post The Fast Track From No Inflation to Runaway Inflation appeared first on Daily Reckoning.

Today’s environment is drastically different than it was in the late ‘70’s and early ‘80s when inflation was nearly out of control. Today, disinflation is the primary challenge central banks face, not inflation.

It’s impossible to imagine another Volcker today. Today’s markets depend on the artificially low interest rates that the Fed’s been generating since 2009.  Raising interest rates would devastatingly pop the asset bubbles in stocks and elsewhere.

Remember how markets revolted against the possibility of further rate increases last December, when rates were still under 3%? Imagine 20% interest rates.

But the problems in the economy today are structural, not liquidity-related. Federal Reserve officials have of course misperceived the problem. The Fed is trying to solve structural problems with liquidity solutions. That will never work, but it might destroy confidence in the dollar in the process.

Fiat money can work but only if money issuance is rule-based and designed to maintain confidence. Today’s Fed has no rules and is on its way to destroying confidence. Based on present policy, a complete loss of confidence in the dollar and a global currency crisis is just a matter of time.

Consumer price inflation has remained persistently low, despite the Fed’s best efforts. This has led many people to ask where the inflation is, because the Fed has created trillions of dollars since the financial crisis.

But there has been inflation. It’s just been in assets like stocks, bonds, real estate, etc. The market’s back to record highs again, in case you haven’t heard.

The bottom line is, we’ve seen asset price inflation, and lots of it, too.

But the question everyone wants to know is when will we finally see consumer price inflation; when will all that money creation catch up at the grocery store and the gas pump?

The Fed is aiming for sustained 2% inflation. But it’s proven extremely difficult to accomplish.

Personal consumption expenditures (PCE) is the core price deflator, which is what the Fed looks at. Currently, it’s stuck below 2%. It hasn’t gone much of anywhere. But the Fed continues to try everything possible to get it to 2% with hopes to hit 3%.

But the reason the Fed has struggled to attain its goals is that inflation is not purely a function of monetary policy. It’s a partial function of monetary policy. Psychology is the other factor.

Milton Friedman had a famous quote, that inflation is always and everywhere a monetary phenomenon. But it’s not really true.

Inflation is also a partial function of behavioral psychology. It’s very difficult to get people to change their inflation expectations after a trend has continued for a long time. So it’s very hard to raise inflation from under 2% to 3%.

But once it does, a psychological shift could occur, and it could lead to expectations of further inflation to come.

That’s because double-digit inflation is a non-linear development. What I mean is, inflation doesn’t go simply from 2%, to 3%, to 4%, to 5%, etc.

Inflation can really spin out of control very quickly if expectations change. In other words, it can gap higher very quickly. Inflation can go from 3% to 5% to 7% or more fairly quickly. Double-digit inflation could quickly follow.

So is double-digit inflation rate within the next five years in the future?

It’s difficult to say exactly. But it is possible. If it does happen, inflation will likely strike with a vengeance.

Please understand, I am not forecasting it. But if it happens, it would happen very quickly. We would see a struggle from 2% to 3%, and then jump to 6%, and then jump to 9% or 10%.

Everyday people would be the greatest casualties.

Central bankers try to use inflation to reduce the real value of the debt to give debtors some relief in the hope that they might spend more and help the economy get moving again.

Of course, this form of relief comes at the expense of savers and investors who see the value of your assets decline.

It’s part of what I call the “money illusion.”

Money illusion has four stages. In stage one, the groundwork for inflation is laid by central banks but is not yet apparent to most investors. This is the “feel good” stage where people are counting their nominal gains but don’t see through the illusion.

Stage two is when inflation becomes more obvious. Investors still value their nominal gains and assume inflation is temporary and the central banks “have it under control.”

Stage three is when inflation begins to run away and central banks lose control. Now the illusion wears off. Savings and other fixed-income cash flows such as insurance, annuities and retirement checks rapidly lose value.

If you own hard assets prior to stage three, you’ll be spared. But if you don’t, it will be too late because the prices of hard assets will gap up before the money illusion wears off.

Finally, stage four can take one of two paths.

The first path is hyperinflation, such as Weimar Germany or Zimbabwe. In that case, all paper money and cash flows are destroyed and a new currency arises from the ashes of the old. The alternative is shock therapy of the kind Paul Volcker imposed in 1980.

In that case, interest rates are hiked as high as 20% to kill inflation, but nearly kill the economy in the process.

Right now, we are in late stage one, getting closer to stage two. Inflation is here in small doses and people barely notice. Savings are being slowly confiscated by inflation, but investors are still comforted by asset bubbles in stocks and real estate.

That’s why you should begin to buy some inflation insurance in the form of hard assets before the Stage Three super-spike puts the price of those assets out of reach.

This is why having a gold allocation now is of value. Because if and when these types of development begin happening, gold will be inaccessible.

I’m on record predicting that gold will go to $10,000 an ounce. To this point, I am often asked, “How can you say gold prices will rise to $10,000 without knowing developments in the world economy, or even what actions will be taken by the Federal Reserve?”

Well, the number is not made up. I don’t throw it out there to get headlines, et cetera. It’s the implied non-deflationary price of gold. Everyone says you can’t have a gold standard, because there’s not enough gold. But there’s always enough gold, you just have to get the price right.

That was the mistake made by Churchill in 1925, as described above. The world is not going to repeat that mistake. I’m not saying that we will have a gold standard. I’m saying if you have anything like a gold standard, it will be critical to get the price right. Paul Volcker said the same thing.

The analytical question is, you can have a gold standard if you get the price right; what is the non-deflationary price? What price would gold have to be in order to support global trade and commerce, and bank balance sheets, without reducing the money supply?

The answer, based on today’s money supply, is $10,000 an ounce.

The now impending question is, are we going to have a gold standard?

That’s a function of collapse of confidence in central bank money, which we’re already seeing. But monetary resets have happened three times before, in 1914, 1939 and 1971. On average, it happens about every 30 or 40 years. We’re going on 50.

So we’re long overdue. Got gold?

Regards,

Jim Rickards
for The Daily Reckoning

The post The Fast Track From No Inflation to Runaway Inflation appeared first on Daily Reckoning.

Paul Volcker: The Last of His Kind

This post Paul Volcker: The Last of His Kind appeared first on Daily Reckoning.

One of the most important figures in the history of U.S. monetary policy, Paul Volcker, died Sunday at the age of 92.

Volcker is famous for having raised interest rates all the way to 20% in June 1981, the highest rates since the Civil War.

His actions are widely credited for ending the great inflation of the 1970s and setting the stage for the Reagan economy of the ’80s (although his sky-high rates nearly sank the economy at first).

Volcker didn’t kill inflation right away — it took another couple of years to finally end it, but rates were never that high again.

Volcker had a solid understanding of inflation and had opposed going off the gold standard in 1971.

He was one of the people in the room at Camp David when Nixon made the decision to close the gold window. He was actually one of the move’s primary strategists.

People assume Nixon and his team intended to permanently sever the dollar from gold. But it’s not true.

What Nixon actually said — and Paul Volcker confirmed this when I spoke to him — is that they didn’t think the U.S. was permanently going off the gold standard.

Nixon, and others involved with the decision, considered it a temporary suspension until the major global powers could get together, rewrite the system and get back to a gold standard at a much higher gold price (it was then pegged at $35/ounce).

Volcker understood that it was necessary to get the gold price right before a gold standard could resume. After all the money printing that went to fund Vietnam and the Great Society in the 1960s, he knew that a higher gold price was necessary.

In other words, Volcker knew the U.S. would have to avoid the mistake Winston Churchill made in 1925 as Great Britain’s chancellor of the Exchequer, the equivalent of the U.S. Treasury.

Churchill was determined to fix the gold price (measured in sterling) at the pre-WWI parity. He felt duty-bound to live up to the old value.

But he neglected all the money printing that occurred to pay for the war. A higher gold price was required to reflect the inflation that took place. Otherwise, setting the gold price too low would be extremely deflationary.

And that’s what happened. Churchill fixed gold at the pre-war value.

By failing to set gold at a higher price (again, measured in sterling), Churchill essentially cut the money supply in half. That threw the U.K. into a depression.

While the rest of the world ran into the depression in 1929, in the U.K. it started in 1926. In other words, Churchill’s decision plunged the U.K. into recession three years ahead of the rest of the world.

Going back to gold at a much higher price measured in sterling would have been the right way to do it. Choosing the wrong price was a contributor to the great depression.

So in 1971, Volcker realized that gold would have to be fixed at a higher price to reflect the money-printing that had taken place during the preceding years. Otherwise, it could have dire consequences.

Of course, the point was moot because the U.S. never did reopen the gold window. And the ’70s were certainly marked by inflation, not deflation.

Most people don’t know how close to hyperinflation the U.S. came by the late ’70s, and how close the world was to losing confidence in the dollar.

In 1977, the U.S. had to issue Treasury bonds denominated in Swiss francs because no one wanted dollars, at least at an interest rate that the Treasury was willing to pay.

They were called Carter bonds.

Not surprisingly, the economic morass of the late ’70s cost Carter reelection. Inflation was between 14% and 15% by the time Reagan was sworn in.

Many people forget that Carter appointed Volcker, not Reagan. He began raising rates right away, although they only rose to 20% under Reagan.

Volcker’s extreme interest rates helped send the economy into recession, first in mid-1980 and again in 1982.

Although Volcker had Reagan’s support, many voices in the Republican Party wanted him replaced by a more accommodating Fed chairman. So Volcker was not extremely popular at the time.

But he knew the dollar is ultimately backed by confidence, and he was determined to restore it.

Volcker did tame inflation, which was back down to about 3% in 1983 after peaking near 15% in 1980. The dollar strengthened, the economy recovered and one of the greatest bull markets in stock market history was underway.

So Paul Volcker remains one of the most important Fed chairmen ever.

May he rest in peace.

Regards,

Jim Rickards
for The Daily Reckoning

The post Paul Volcker: The Last of His Kind appeared first on Daily Reckoning.

Paul Volcker: The Last of His Kind

This post Paul Volcker: The Last of His Kind appeared first on Daily Reckoning.

One of the most important figures in the history of U.S. monetary policy, Paul Volcker, died Sunday at the age of 92.

Volcker is famous for having raised interest rates all the way to 20% in June 1981, the highest rates since the Civil War.

His actions are widely credited for ending the great inflation of the 1970s and setting the stage for the Reagan economy of the ’80s (although his sky-high rates nearly sank the economy at first).

Volcker didn’t kill inflation right away — it took another couple of years to finally end it, but rates were never that high again.

Volcker had a solid understanding of inflation and had opposed going off the gold standard in 1971.

He was one of the people in the room at Camp David when Nixon made the decision to close the gold window. He was actually one of the move’s primary strategists.

People assume Nixon and his team intended to permanently sever the dollar from gold. But it’s not true.

What Nixon actually said — and Paul Volcker confirmed this when I spoke to him — is that they didn’t think the U.S. was permanently going off the gold standard.

Nixon, and others involved with the decision, considered it a temporary suspension until the major global powers could get together, rewrite the system and get back to a gold standard at a much higher gold price (it was then pegged at $35/ounce).

Volcker understood that it was necessary to get the gold price right before a gold standard could resume. After all the money printing that went to fund Vietnam and the Great Society in the 1960s, he knew that a higher gold price was necessary.

In other words, Volcker knew the U.S. would have to avoid the mistake Winston Churchill made in 1925 as Great Britain’s chancellor of the Exchequer, the equivalent of the U.S. Treasury.

Churchill was determined to fix the gold price (measured in sterling) at the pre-WWI parity. He felt duty-bound to live up to the old value.

But he neglected all the money printing that occurred to pay for the war. A higher gold price was required to reflect the inflation that took place. Otherwise, setting the gold price too low would be extremely deflationary.

And that’s what happened. Churchill fixed gold at the pre-war value.

By failing to set gold at a higher price (again, measured in sterling), Churchill essentially cut the money supply in half. That threw the U.K. into a depression.

While the rest of the world ran into the depression in 1929, in the U.K. it started in 1926. In other words, Churchill’s decision plunged the U.K. into recession three years ahead of the rest of the world.

Going back to gold at a much higher price measured in sterling would have been the right way to do it. Choosing the wrong price was a contributor to the great depression.

So in 1971, Volcker realized that gold would have to be fixed at a higher price to reflect the money-printing that had taken place during the preceding years. Otherwise, it could have dire consequences.

Of course, the point was moot because the U.S. never did reopen the gold window. And the ’70s were certainly marked by inflation, not deflation.

Most people don’t know how close to hyperinflation the U.S. came by the late ’70s, and how close the world was to losing confidence in the dollar.

In 1977, the U.S. had to issue Treasury bonds denominated in Swiss francs because no one wanted dollars, at least at an interest rate that the Treasury was willing to pay.

They were called Carter bonds.

Not surprisingly, the economic morass of the late ’70s cost Carter reelection. Inflation was between 14% and 15% by the time Reagan was sworn in.

Many people forget that Carter appointed Volcker, not Reagan. He began raising rates right away, although they only rose to 20% under Reagan.

Volcker’s extreme interest rates helped send the economy into recession, first in mid-1980 and again in 1982.

Although Volcker had Reagan’s support, many voices in the Republican Party wanted him replaced by a more accommodating Fed chairman. So Volcker was not extremely popular at the time.

But he knew the dollar is ultimately backed by confidence, and he was determined to restore it.

Volcker did tame inflation, which was back down to about 3% in 1983 after peaking near 15% in 1980. The dollar strengthened, the economy recovered and one of the greatest bull markets in stock market history was underway.

So Paul Volcker remains one of the most important Fed chairmen ever.

May he rest in peace.

Regards,

Jim Rickards
for The Daily Reckoning

The post Paul Volcker: The Last of His Kind appeared first on Daily Reckoning.

How to Avoid Shipwrecking Your Retirement

This post How to Avoid Shipwrecking Your Retirement appeared first on Daily Reckoning.

Nilus MattiveDear Rich Lifer,

You’ve worked incredibly hard in order to save up to retire. The road to retirement can be a difficult one that requires both social and financial sacrifices in order to save enough for a comfortable retirement. This is why it’s crucial  to avoid as many financial  mistakes that  could compromise the security of your retirement plan as you can.

Not to fear! I’ll highlight some of the common mistakes people make with their retirement funds so that you can avoid these slip ups.

 

  1. Not Having a Plan

 

According to the Retirement Confidence Survey from the Employee Benefits Research Institute, 48% of workers haven’t calculated how much money they need to save for retirement. If you don’t have a plan, you are setting yourself up for failure. In fact, Fortune magazine published a study which showed that people with written plans end up with an average of five times the amount of money at retirement as compared to those with no written plansThere is no “one size fits all” when it comes to a financial plan, but experts suggest you aim to have enough saved up to in your retirement account and income from other sources to equal 80% of your income at the time you retire..

 

  1. Taking Social Security Too Early

 

Although you can start collecting Social Security Payments at age 62, your monthly checks are reduced if you start collecting benefits so soon. This could mean your benefits are reduced by almost 30%! To claim your full benefits you must sign up for Social Security at your full retirement age, which varies based on date of birth. So, for a worker eligible for a $1,000 monthly Social Security benefit at his full retirement age, claiming at age 62 reduces their monthly payment to $750 if his birth year is 1954 and if they were  born in 1957 it brings the amount down to $725.

Of course, there can be reasons to start collecting social security early, such as health concerns or an issue with your work status, but if you have the choice, make sure you think long and hard about when the right time is to start your collection.

 

  1. Cashing Out Before You Retire

 

It’s very tempting to dip into a sizable retirement fund, but as much as you tell yourself you will pay yourself back, once that money is gone it is usually gone for good. It is also important to remember that you have to pay income tax on any money you withdraw from an IRA. You also can face a 10% early withdrawal penalty if you withdraw money before the age 59 ½. If you absolutely must take out funds from your 401(k), there is a loophole you can use to take money out with no penalty. You can take penalty-free 401(k) withdrawals beginning at age 55, if you leave the job associated with that 401(k) account at age 55 or later.

 

  1. Spending Too Much Too Soon

 

When most people retire they are still living active and healthy lives. This will most likely result in wanting to spend money on activities such as trips, vacation homes, or boats. However, always make sure you are keeping track of your spending. If you live into your 90s you will still need resources in order to take care of yourself for your whole life.

 

  1. Playing the Stock Market

 

This one may seem a bit counterintuitive, but hear me out. Most people automate their 401(k) savings and investments while they are actively working so they can focus on other things. However, once retired some retirees think they are smart enough to take on Wall Street and take control of their own financial fate. My advice here may seem harsh, but unless you have experience with the market, or have someone who does know what they are doing, most likely you are not smart enough to beat Wall Street at it’s own game. Ultimately it may be  a much better idea to stick to a low-cost diversified ETF or mutual fund. Either way, if you decide to play the stock market, make sure it is with funds you are comfortable losing. Never invest money you can’t afford to lose.

 

  1. Failing to Account for Inflation

 

Right now the government states that inflation is barely 2%; however, there is no way to tell if, or when, higher inflation will occur. Inflation is often an issue for retirees because pensions may not be adjusted for inflation. Further, many jobs fail to offer a traditional pension plan. In fact, Only 17 percent of private industry employees were offered a traditional pension plan in 2018, according to Bureau of Labor Statistics data.

Social Security payments are adjusted for inflation annually; for example, recipients will get 2.8 percent bigger checks in 2019. However, this often only accounts for the increase in Medicare costs. So make sure you should keep a portion of your savings invested in assets that increase with inflation, such as real estate, stocks or rental properties.

  1. Failing to Prepare for Medical Expenses

 

Many retirees have Medicare which covers most medical bills, alongside supplemental insurance. However, many forget that you must also be prepared to pay for deductibles, uncovered procedures and copays. These costs can add up over time. In addition, some health expenses, such as dental, eyeglasses, or hearing aids, are not covered by Medicare. Putting aside funds for health expenses that are likely to occur later in life will save you a lot of headache down the road for unexpected medical expenses..

Also remember, most people become  eligible for Medicare during the months around their 65th birthday. If you don’t sign up for Medicare during this initial enrollment period, you could be charged a late enrollment penalty for as long as you have Medicare.

 

  1. Not Spending Enough

 

This may seem odd, but it is possible to be too cautious when it comes to spending your retirement savings. Of course it’s great to leave your kids an inheritance, but there is no reason to scrimp and save if you have enough money in the bank. Don’t put yourself through  Unnecessary financial hardships that could be easily avoided by being realistic about your spending plan.

I hope that these tips will be helpful to you as you move forward with your retirement plan! I know it can seem like a daunting task, but with the right research, and planning, you can retire comfortably, and live out your golden years the way you always pictured them.

To a richer life,

Nilus Mattive

Nilus Mattive

The post How to Avoid Shipwrecking Your Retirement appeared first on Daily Reckoning.

7 Retirement Sins You Don’t Want to Commit

This post 7 Retirement Sins You Don’t Want to Commit appeared first on Daily Reckoning.

In general, Americans are pretty fearful about retirement and it’s easy to see why.

So today I want to talk about seven different things that can totally derail anyone trying to work toward more financial stability in their golden years.

Retirement Planning Sin #1: Counting on Social Security, Pensions, and Other Traditional Plans

At this point, I’ve probably written a million words on the problems with our traditional retirement systems and you’re free to read my thoughts in past articles and interviews I’ve done over the years.

But just to recap:

  • Social Security is now taking in less than it pays out and is projected to do so every year going forward…
  • Without changes, the program’s trust fund will be exhausted in 15 years and only 75% of promised benefits will be paid out…
  • Many pension plans – both governmental and private – have been suffering from similar shortfalls and systemic problems…
  • A number of pension plans are already trying to go back on the promises they’ve made to retirees…
  • And while near-term retirees will probably be the least affected group, I wouldn’t treat any guarantee as sacred.

Now, it needs to be said: These are not just abstract concepts. I’m not saying these things for shock value.  These are real issues that impact a lot of people in my own life.

For example, my father has two different state retirement plans after working in various mental health facilities for four decades.

My mother-in-law receives her retirement income from a pension provided by Dupont, her life-long employer.

And even I have a small pension from more than a half decade working at Standard & Poor’s.

I hope all of our payments keep coming as they should. But I’m telling my father, my mother-in-law, and everyone else not to just blindly depend on it!

Instead, you should always be saving and investing somewhere else on the side… just as a fall-back plan. 

Retirement Planning Sin #2: Failing to Have a Budget

For about 15 years, I urged my mom to keep track of her spending so she would have a good understanding of what her cash flows looked like.

In response, she gave me all kinds of excuses. She didn’t have time. She already had a basic idea of what she was spending. That there was no possible way to even keep track between her credit cards, her check payments, and all the various cash transactions she was making.

Then she turned 66 and got serious about retiring.

Sure, she knew what all the big numbers looked like – property taxes, car payments, etc. But did she have any idea how much was being spent eating out with her friends? Or going overboard buying Christmas gifts for my daughter?

Not really. Without that knowledge it was going to be impossible for her to design a sustainable life on a very fixed income.

Now she’s actually retired and keeps better track of the money coming in and going out because she has to. But she could have been even better prepared… and probably saved a lot more money ahead of time… if she had started sooner.

So please, if you don’t currently have a budget… one that accounts for ALL your expenses… please get one up and running.

I do this in an excel spreadsheet for my own family and we meet at the end of every year to revisit things.

But the process can be as simple as a $1 notebook from the drug store. And all you have to do is write down how much you spent and on what – no matter what payment form you use.

Then, after a few months, add up the numbers and put them into basic categories. I think you’ll be surprised at the patterns you see… and where you might have room for additional savings.

One other thing – if you share your finances with anyone else, it’s absolutely crucial that you include them in this process and that you have open and honest discussions about how the money is getting spent.

Speaking of which, there’s one major expense you might NOT be factoring in. And that’s why the third deadly sin is

Retirement Planning Sin #3: Ignoring Inflation, Especially in Health Care Costs

I’m sure you understand the general concept of inflation and you already have a sense that today’s budget might look different ten years from now simply because of rising prices.

But perhaps no single expense is rising faster – or impacting more retirees – than soaring healthcare costs.

Every year, Fidelity takes a look at how much a typical 65-year-old couple will spend on out-of-pocket healthcare costs during retirement.

This year the number was an eye-popping $280,000.

Five years ago, the number was $220,000.

That’s a 27% surge in just half a decade!

What’s more, this is assuming you have traditional Medicare coverage. Plus it doesn’t include costs associated with nursing-home care.

And that’s where things get really scary.

Unless you’re essentially destitute and qualify for Medicaid – or you’ve already purchased long-term care insurance – medical treatment outside a hospital is going to be your cost to bear.

The total outlay depends on a number of factors, including your local area. But according to Senior Living, the national average for a semi-private nursing home runs $82,128 a year!

Look, I’m not trying to depress you here. But the reality is that 70% of us will need long-term care services at some point in our lives… and sometimes it happens sooner than we think. In fact, 40% of the Americans in long-term care are between the ages of 16 and 64.

So whether you consider long-term care insurance or you simply set aside a big chunk of money and hope for the best, you at least need to consider the huge impact that health care costs will have on your family during retirement.

You’re looking at a quarter of a million bare minimum. And another $100,000 a year if long-term care becomes necessary.

That could be enough to drain even a very well-prepared retiree.

Which is why you should also seriously explore how you can protect your income and assets before they get taken or disqualify you from Medicaid.

The rules vary from state to state, and they’re always changing, but at the bare minimum you want to start thinking about this at least five years before long-term care becomes a real possibility.

For example, if you have a second home or rental real estate, you might consider signing it over to a trustworthy heir before you end up signing it over to a nursing home.

And speaking of protecting your assets…

Retirement Planning Sin #4 Is Not Using Tax Shelters!   

It doesn’t matter if you’re 30 or 60 – you should be using tax-advantaged accounts for the vast majority of your saving and investing.

Obviously, choosing which particular accounts make the most sense is going to vary based on your individual circumstances. But in general I recommend using the following process:

First, contribute enough to any employer-sponsored plan to get the maximum match…

Second, if you’re self-employed – which includes people who merely have side businesses – also consider opening a Solo 401(k) plan…

And third, use IRA accounts – traditional and/or Roth varieties depending on your goals and tax situation – to sock away even more.

This is what I do personally, and the same thing I recommend to everyone else I talk to regardless of age or income.

Retirement Planning Sin #5: Not Having “A Post-Work Plan.”

A lot of people don’t think this really matters – especially if they’re still relatively far away from retirement.

Heck, how could NOT working be hard, right? I mean, most people figure waking up without anything to do is a great problem to have.

However, I know someone who retired – from a job she didn’t even like – and she found the transition to be VERY difficult.

So much so that she had to take a class at her local senior center titled “Every Day Is a Saturday.”

In what amounted to a support group, she witnessed countless other new retirees literally breaking down because they didn’t know how to handle their newfound freedom – including a 70-year-old heart surgeon who cried profusely!

Rather than figuring this out as you go, start thinking about it now… and always keep that budget in the back of your mind, too.

There are countless resources available to retirees – free classes (even college educations in some places!)… special exercise groups… volunteer opportunities… mentoring programs… the sky is literally the limit.

The key is envisioning your future before it arrives.

And on a similar note…

Retirement Planning Sin #6 Is Being Inflexible

We never have any idea how things are going to turn out – in investing or life. So all we can do is plan for the best and prepare for the unforeseen twists and turns.

If you have a very narrow vision of what your future looks like, and you’re unwilling to change course, you’re setting yourself up for potential disappointment.

Just consider the thousands of retirees who are now discovering whole new lives in foreign countries they had never thought of visiting ten years ago!

Am I saying you should have to move to Thailand to get a comfortable retirement? Of course not. I’m simply saying that we should try to find joy no matter what… and embrace the excitement of trying new things no matter our age or circumstances.

That’s the real secret to a long, healthy, and happy life.

Which brings me to our final retirement planning sin… perhaps the biggest of them all…

Retirement Planning Sin #7: Procrastinating!

I started saving in a 401(k) the very first paycheck I got and I have increased the amount I sock away at every possible opportunity ever since then.

Two decades in, I have quite a lot in the bank already. Meanwhile, most of my friends are still treating retirement as some far-off thing.

Sure, there might be another two decades to go for anyone in my age bracket. But time flies!

That’s something to remember no matter how old you are… no matter where you’re at in terms of your goals… and no matter how much money you currently have.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post 7 Retirement Sins You Don’t Want to Commit appeared first on Daily Reckoning.

The Fed’s Dangerous Inflation Game

This post The Fed’s Dangerous Inflation Game appeared first on Daily Reckoning.

By now you’ve heard that the U.S. economy expanded at an annualized rate of 3.2% in the first quarter of 2019. That was reported by the Commerce Department last Friday morning.

That strong growth coming on top of 4.2% in Q2 2018 and 3.4% in Q3 2018 means that in the past twelve months, the U.S. economy has expanded at about a 3.25% annualized rate. That’s a full point higher than the average growth rate since June 2009 when the expansion began and it’s in line with the 3.22% growth rate of the average expansion since 1980.

It looks as if the “new normal” is back to the old normal of 3% or higher trend growth. Or is it?

The headline growth rate of 3.2% was certainly good news. But, the underlying data was much less encouraging. Most of the growth came from inventory accumulation and government spending (mostly on highway projects). But, business won’t keep building inventories if final demand isn’t there. That’s where the 0.8% growth in personal consumption is troubling.

The consumer didn’t show up for the party in the first quarter.

If they don’t show up soon, that inventory number will fall off a cliff. Likewise, the government spending number looks like a one-time boost; you can’t build the same highway twice. Early signs are that the second quarter is off to a weak start.

Dig deeper and you can see that core PCE (the Fed’s preferred inflation metric) cratered from 1.8% to 1.3%. That’s strong disinflation and dangerously close to outright deflation, which is the Fed’s worst nightmare.

The data just show that the Fed is as far away as ever from its 2% target. But why should it even have 2% as its target?

Common sense says price stability should be zero inflation and zero deflation. A dollar five years from now should have the same purchasing power as a dollar today. Of course, this purchasing power would be “on average,” since some items are always going up or down in price for reasons that have nothing to do with the Fed.

And how you construct the price index matters also. It’s an inexact science, but zero inflation seems like the right target. But the Fed target is 2%, not zero. If that sounds low, it’s not.

Inflation of 2% cuts the purchasing power of a dollar in half in 35 years and in half again in another 35 years. That means in an average lifetime of 70 years, 2% will cause the dollar to 75% of its purchasing power! Just 3% inflation will cut the purchasing power of a dollar by almost 90% in the same average lifetime.

So again, why does the Fed target 2% inflation instead of zero?

The reason is that if a recession hits, the Fed needs to cut interest rates to get the economy out of the recession. If rates and inflation are already zero, there’s nothing to cut and we could be stuck in recession indefinitely.

That was the situation from 2008–2015. The Fed has gradually been raising rates since then so they can cut them in the next recession.

But there’s a problem. The Fed can raise rates all they want, but they can’t produce inflation. Inflation depends on consumer psychology. We have not had much consumer price inflation, but we have had huge asset price inflation. The “inflation” is not in consumer prices; it’s in asset prices. The printed money has to go somewhere. Instead of chasing goods, investors have been chasing yield.

Yale scholar Stephen Roach has pointed out that between 2008 and 2017 the combined balance sheets of the central banks of the U.S., Japan and the eurozone expanded by over $8 trillion, while nominal GDP in those same economies expanded just over $2 trillion.

What happens when you print over $8 trillion in money and only get $2 trillion of growth? What happened to the extra $6 trillion of printed money?

The answer is that it went into assets. Stocks, bonds and real estate have all been pumped up by central bank money printing. The Fed, first under Ben Bernanke and later under Janet Yellen — repeated Alan Greenspan’s blunder from 2005–06.

Greenspan left rates too low for too long and got a monstrous bubble in residential real estate that led the financial world to the brink of total collapse in 2008.

Bernanke and Yellen also left rates too low for too long. They should have started rate and balance sheet normalization in 2010 at the early stages of the current expansion when the economy could have borne it. They didn’t.

Bernanke and Yellen did not get a residential real estate bubble. Instead, they got an “everything bubble.” In the fullness of time, this will be viewed as the greatest blunder in the history of central banking.

The problem with asset prices is that they do not move in a smooth, linear way. Asset prices are prone to bubbles on the upside and panics on the downside. Small moves can cascade out of control (the technical name for this is “hypersynchronous”) and lead to a global liquidity crisis worse than 2008.

If the Fed raises rates without inflation, higher real rates can actually cause the recession and/or market crash the Fed has been preparing to cure. The systemic dangers are clear. The world is moving toward a sovereign debt crisis because of too much debt and not enough growth.

Inflation would help diminish the real value of the debt, but central banks have obviously proved impotent at generating inflation. Now central banks face the prospect of recession and more deflation with few policy options to fight it.

So the Fed has been considering some radical ideas to get the inflation they desperately need.

One idea is to abandon the 2% inflation target and just let inflation go as high as necessary to change expectations and give the Fed some dry powder for the next recession. There are other, more drastic solutions as well.

I’ve discussed how Modern Monetary Theory (MMT) is becoming increasingly popular in Democratic circles, even though the Fed has disavowed it. But it can’t be ruled out if Democrats win the 2020 election.

That means 3% or even 4% inflation could be coming sooner than the markets expect if they’re pursued.

But those who want higher inflation should be careful what they ask for. Once inflation expectations develop, they can take on lives of their own. Once they take root, inflation will likely strike with a vengeance. Double-digit inflation could quickly follow.

Double-digit inflation is a non-linear development. What I mean by that is, inflation doesn’t go simply from two percent, three percent, four, five, six. What happens is it’s really hard to get it from two to three, which is ultimately what the Fed wants. But it can jump rapidly from there.

We could see a struggle to get from two to three percent, but then a quick bounce to six, and then a jump to nine or ten percent. The bottom line is, inflation can spin out of control very quickly.

If people believe inflation is coming, they will act accordingly en masse, the velocity of money will increase and soon enough the inflation will arrive unless money supply has been severely constricted. That’s how you get the rapid inflation increases I described above.

So is double-digit inflation rate within the next five years in the future? It’s possible. Just to be clear, I am not making a specific forecast here. But if it happens, it could happen very quickly. So the Fed is playing with fire if it thinks it can overshoot its inflation targets without consequences.

It doesn’t seem like a problem now. But one day it might.

Regards,

Jim Rickards
for The Daily Reckoning

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“Is Inflation Dead?”

This post “Is Inflation Dead?” appeared first on Daily Reckoning.

Today we don the prophet’s motley, climb atop our soapbox… and holler a thumping prediction.

For we have indication — reliable indication — that an established trend will soon end. And that another will begin.

But what established trend? How will it end? And why so all-fired important?

Answers anon. But first an after-action report on today’s combats…

The bears won — if barely.

The Dow Jones lost 135 points today. The S&P was essentially even on the day. The Nasdaq, meantime, turned in a 16-point gain.

Mixed earnings reports — some swell, some not — largely cancelled each other.

We now turn and face the future, by first turning and facing the past — Aug. 13, 1979, to be precise.

“The Death of Equities,” 2019 Version

On that date BusinessWeek announced before the world “The Death of Equities.”

For nearly 15 years the stock market had been sunk in the crushing deeps of a bear market. Why should it end?

Dazzled and blinkered by the present’s brilliant focus, the wise men of BusinessWeek had forgotten about the past.

This time is different, they believed.

They forgot that markets move in clockwork cycles, that the wheel swings around eventually, that the full circle runs to 360 degrees.

The gods pointed, laughed… and plotted.

By 1982 the loveliest bull market in all of history was underweigh. It roared and raged for nearly 20 years following.

Come we now to this headline in another BusinessWeekBloomberg Businessweek — dated April 17, 2019:

“Is Inflation Dead?”

Is Infaltion Dead?

“It Is Always Different — Until It Is Once Again the Same”

As the case for stocks was laughed out of court in 1979, so the case for inflation is laughed out of court today.

As in 1979, today’s professional men believe this time is different.

They tell us globalization, a “savings glut” or productivity increases through technology have licked inflation for good.

Despite the heroic sweating of the printing press and all the angels and saints, they remind us, the Federal Reserve cannot work a sustained 2% inflation rate.

Why should it change now?

But it is always different — until it is once again the same.

Here at The Daily Reckoning we take the overall view, the long view — the view sub specie aeternitatis.

And in the grand sweep, the cycle completes.

Now that the Bloomberg men have tugged on Fate’s cape good and hard… now that they have suggested inflation’s permanent demise…

We have our perfect contrarian indicator.

We must conclude that inflation lurks in the offstage wings, awaiting word from the gods.

But if the Federal Reserve has proven unable to whip disinflation with its deep bag of tricks, how will inflation make its entrance?

How Might Inflation Return?

We have suggested it previously, if only from a glancing angle:

Modern Monetary Theory — MMT.

Come the next downturn, the Federal Reserve will blast us with the same quantitative easing and zero interest rates it inflicted upon us last time.

It may also have a go at negative interest rates.

But much of its “dry powder” the Federal Reserve used against the last crisis. Its stocks remain heavily depleted, despite efforts to reload.

Like last time, its false fireworks may scintillate the stock market — in the near run at least.

Also like last time, they will work limited effect upon the economy of people, places and things.

That is, upon the real economy.

And negative interest rates have failed to meet their advertising where tried, Japan and Europe being cases brilliantly in point.

There is little reason to expect they will succeed in these United States.

No, the central banks are tied hand and foot.

Now enter MMT…

The “Perfect Theory for Our Times”

MMT will parade as quantitative easing for Main Street.

Through the miracle of the printing press a healthy inflation will finally emerge from its cage.

If it strays too far or begins to snarl, the tax man will go chasing after it.

Higher taxes will simply vacuum surplus money from the economy and jam inflation back in its cell.

MMT further promises universal health care, full employment, college free of charge, a throbbing economic engine, a thermostatic correction of the planetary temperature… and more.

Thus MMT is the “perfect theory for our times” explains former Morgan Stanley global strategist Gerard Minack:

One reason this may be attractive is that it is increasingly clear that monetary policy is exhausted, at least in the developed economies…

It seems to me that MMT is the perfect theory for the times. It appears to justify a switch from monetary to fiscal policy as the key tool of macro management… it can also be used to fund popular policies… Put simply, this would see fiscal policy play the role that monetary policy has played for decades… The key point now is that MMT is being used as an argument to justify important policy changes…

An End to “Secular Stagnation” and the “Savings Glut”

And through public spending MMT promises to murder the “secular stagnation” and “savings glut” that presently ride and torture the economic establishment.

Lower interest rates and further monetary gimcrack cannot.

Minack:

If this policy approach were implemented it would be fatal to secular stagnation… For 30 years the main policy response to this [problem] has been to reduce interest rates… The point is that it has required lower and lower rates to achieve any given growth rate. Increased public dis-saving is the direct antidote to the private sector’s rising saving… if there is a broad-based adoption of MMT in the next downturn, it will end the secular stagnation era. 

We are skeptical — deeply — that a “savings glut” has any existence whatsoever.

As well argue that a “wealth glut” exists. Moreover, that it takes the form of a public menace.

But our larger point, sharp as pins, is that MMT is beginning to get a hearing.

To date a mere handful of Democratic officials and presidential aspirants have bellowed for MMT.

But come the next downturn and the Federal Reserve’s botched rescue, the chorus will swell — depend on it.

Just so, you say.

But the Republicans will never let it through. They may be a gang of scoundrels in their own right. But even they will go only so far.

“Modern Monetary Theory for Conservatives”

But Republicans too sense changes in the wind. They too can jab a moist index finger in the air to determine which way it blows.

Might they hatch a “conservative” MMT to position themselves upwind of public opinion?

But does a conservative MMT even exist?

Yes, says a certain Steve Englander, who directs global research at Standard Chartered Bank.

He is also the author of “Modern Monetary Theory for Conservatives.”

From which:

A conservative version of Modern Monetary Theory (MMT) could arguably work just as well as the standard progressive version…

But instead of funding lavish and exotic government spending, a conservative MMT would finance tax cuts.

But have they not tried tax cuts already to little general effect?

Yes, but an MMT-backed tax cut would hacksaw taxes to the extent a progressive MMT would heave forth money.

Two Approaches, Same Result

The gargantuan tax savings would then go flooding onto Main Street.

Mr. Englander:

The economic outcomes from the lower-tax version of MMT would likely be indistinguishable from the higher spending version…

In the first case, the private sector is expected to do the spending, in the second, the government…

The same principles could be used to justify a very different agenda than is commonly associated with MMT. The core idea that central bank-financed deficits drive activity and inflation remains the same. 

This Englander says he does not advocate any such plan — merely that it is possible.

But might some enterprising politicos haul it out as a more “sensible” alternative to a lunatic progressive MMT?

Why not?

Might it blast identical holes in the deficit?

Well, maybe it would. But recall, deficits do not matter.

This we have on authority of a former Republican vice president.

Besides, you cannot beat something with nothing, he might say.

We must do something. This is something. We must therefore do it.

Progressive MMT, conservative MMT, the end is the same.

And either could be one good crisis away…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

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REVEALED: The True Inflation Rate

This post REVEALED: The True Inflation Rate appeared first on Daily Reckoning.

The Federal Reserve has pursued its 2% inflation target with a monomaniacal determination… like a mad dog worrying a bone.

But it has largely been a juiceless pursuit… “as elusive as sheet lightning playing among June clouds.”

Inflation has bubbled a bit here, gurgled a bit there. But to limited general effect.

Headline inflation (including food and energy) sank from 2.9% last June… to 1.6% in January.

It is true that core inflation — excluding food and energy — runs somewhat warmer at 2.2%, annualized.

But the oven is nonetheless set to low temperature.

Experts dispute the causes — depressed worker wages obtaining from globalization, “secular stagnation,” a global “savings glut,” the astrological misalignment of stars and planets, etc.

Some accounts carry a greater plausibility than others.

We presently incline toward the astrological theory — but we are far from convinced.

Meantime, the February inflation numbers are due out tomorrow.

We expect no sharp departure from existing trends.

And they will likely offer the Federal Reserve additional justification to hold rates steady.

Here we speak of official inflation measures.

But is actual inflation vastly higher?

Yes, the Federal Reserve’s 2% sustained inflation hopelessly eludes it.

Yet assets such as stocks, bonds and real estate have been the scenes of dramatic inflation over the past decade.

The S&P — to take one example — has increased over 300% alone.

And therein hangs an epic tale…

Household net worth in these United States has increased some 73% since the Great Recession.

And Americans’ financial assets totaled over $85 trillion at the end of 2018.

Traditional inflation models exclude these asset prices.

But what if they were included?

The Federal Reserve’s New York headquarters hatched a model for that express purpose:

The “underlying inflation gauge,” or UIG.

This UIG incorporates not only consumer prices — but producer prices, commodity prices and financial asset prices.

Thus it promises a true inflation reading.

Claims the New York Fed:

The UIG proved especially useful in detecting turning points in trend inflation and has shown higher forecast accuracy compared with core inflation measures.

If we gauge inflation by this comprehensive model… the true rate of inflation substantially exceeds the Federal Reserve’s 2% target.

What is the true inflation rate as indicated by the UIG?

Roughly 3%.

From 3.06% in December, it slipped to 2.99% in January.

The true inflation rate nonetheless exceeds the core rate by nearly one full percentage point.

The lesson, plain as eggs:

Inflation lives and thrives. But largely in assets.

And the Federal Reserve could have begun raising interest rates as far back as Bernanke.

Danielle DiMartino Booth, former aide to ex-Dallas Fed President Richard Fisher:

Had the Fed been using a 2% target based on the UIG, [former chairs] Janet Yellen and Ben Bernanke would have been compelled to raise interest rates much earlier than they did. 

Sharpening the point is Joseph G. Carson, former global director of economic research at AllianceBernstein:

The UIG carries [an important message] to policymakers: The obsessive fears of economywide inflation being too low is misguided; monetary stimulus in recent years was not needed.

Obsessive fears of low inflation are misguided? Monetary stimulus in recent years was not needed?

This Carson heaves up strange and dangerous heresies.

The Paul Krugmans of this world will set him down as an agent of the Old Boy himself… and an enemy of civilization.

As well claim that Noah’s Ark did not house all the world’s species in duplicate… that George Washington did not fell the cherry tree…

Or worse — that gold is money.

But what if the UGI is correct?

Were decades of loose monetary policy an epic blunder?

Analyst John Rubino of DollarCollapse.com:

The really frustrating part of this story is that had central banks viewed stocks, bonds and real estate as part of the “cost of living” all along, the past three decades’ booms and busts might have been avoided because monetary policy would have tightened several years earlier, moderating each cycle’s volatility.

But if the actual inflation rate runs to 3%… what does it portend for the economy?

When this underlying inflation gauge crossed 3%, Zero Hedge reminds us, recession and bear markets often follow.

At 2.99%, it is currently hard against the 3% threshold.

So here we welcome our old colleague Catch-22 to the proceedings…

If the Federal Reserve resumes rate hikes at this late point, it would likely trigger a major stock market sell-off.

But if it does not raise rates, the true inflation rate will once again exceed the critical 3% mark, inviting recession… and a market sell-off.

Thus the Fed appears damned if it raises rates — and damned if it doesn’t.

But either way… damned.

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post REVEALED: The True Inflation Rate appeared first on Daily Reckoning.

Why Inflation Is Here To Stay – The Case For Gold

January 3, 2019 @ 3:52 pm MARK SKOUSEN. Named one of the “Top 20 Living Economists,” Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.     “Fiat money and fiduciary credit are the pillar and post of our age of inflation.” — Hans F. Sennholz “The establishment of central banking removes the checks of bank credit expansion and puts the inflationary engine into operation.” — Murray N. Rothbard When the Federal Reserve was created in December 1913, it had two purposes: (1) To defend the gold standard and the dollar against inflation, and (2) To be a lender of last resort during a banking crisis. It turned out that in the first 30 years of the Fed, it kept its promise more with the #1 goal than the #2 goal. During the economic collapse of 1929-32, the Fed failed miserably to be a lender of … Continue reading