James Turk recently wrote A Four Month Review comparing the gains and losses in various markets. I was struck by the clarity of his simple chart as an explanation of what is happening to the price of stuff. The CRB Index (third column) is used to track the price of basic commodities, including cattle, copper, cotton, crude oil, soybeans, sugar, and wheat. These are the basics we use to live. (Click to see a complete list of the markets and comodities used for the CRB Index.) The chart shows that in the last month, the price of the CRB has risen 3.8%. In the first four months of 2008, the price has gone up 12.6%. Since May 1, 2007, the price has increased 32.9%.
Someone might say that the price of these basics is going up because the value of the dollar is going down. True, the dollar has lost value, 11% since May, 2007. But that 11% loss of purchasing power doesn't come close to matching the 33% increase in the cost of commodities. My point? This chart shows what we all know when we go to the grocery store or the gas pump. The cost of living is going up. Significantly! And it is going up regardless of what currency you use. (Even for those using euros, the differential between the CRB and the increased purchasing power of the euro is 18.9%. This means that the price of stuff has gone up almost 20% in Europe.)
How come these numbers are so disconnected from what the government reports on the rate of inflation? According to a recent article, Numbers Racket, by Kevin Phillips, the numbers being reported are for a "make believe economy," not the real world in which we live. Here is a key excerpt that is definitely worth reading. If your wallet seems to be emptying much faster than it did last year, it is not your imagination. Both Democratic and Republican administrations are reporting fiction.
I watch this unfolding and I appreciate God all the more. God is not trying to make us think things are fine when they're not. He is not interested in make believe. He deals with us straight up, giving us the unvarnished and sober truth about ourselves. He offers us hope that is in touch with reality. You can trust what He says all the way to the bank.
This isn't intended to get into prophecy again, but just some speculation on my part and wanted to see if my speculation makes sense. It seems to me that, from a worldly standpoint, the only way to get around this is to consolidate currency and assets around the globe. If the balance point (in admittedly simplistic terms) for assets and currency is zero and countries are skewing to the negative in the spectrum, then there are countries that are skewing to the positive to keep that world balance at zero. So to consolidate (be it currency or government) would be to achieve that balance world-wide. Or, to paraphrase "Firefly," so the world can be messed with equally. Is that reasonable as far as it goes?
I'm not saying it's a positive, just that it seems the most likely way to correct the situation.
Posted by: Jeff | May 06, 2008 at 10:26 AM
Jeff:
This is not about restoring some "balance point." All major currencies are fiat whose supply is being increased by liberal use of the printing press (and credit). At some point, it will dawn on the common man that these pieces of paper (and their electronic equivalents) have rapidly diminishing perceived value. As the velocity of this erosion of value increases, it makes holding such a piece paper (in your hand or in a bank, makes no difference) VERY costly. Then things will start to get messy.
In the waning days of the Weimar republic (when currency devaluation was at an extreme), factory workers were paid several times during the work day, so that they could immediately make purchases of goods and services. Waiting a day to get rid of your marks meant they would only purchase a fraction of what they could the day before.
The increase in the cost of living is simply another way to describe the diminishing purchasing power of fiat currency.
Posted by: Jim Fleming | May 06, 2008 at 10:56 AM
Okay, Little Red Hen, I believe you! Now what do we do?
Posted by: shego4th | May 07, 2008 at 08:10 AM
This is a great post and easy to understand. We've been buying gold and some silver for a few years now to protect against adverse moves in the USD and it has worked very well. In other words, the USD cash balance in the bank is next to nothing (including saving) and the gold bullion balance is very high right now. Digital gold like GoldMoney has been a very inexpensive and easy way to protect our funds.
It's always good to have the truth about the world around you.
Mark
DGCmagazine.com
Posted by: Mark Herpel | May 08, 2008 at 08:01 AM
Why is gold so bulletproof when it comes to all this? That's one thing I don't understand. Gold doesn't do anything like provide a good or a service and if we get to the point where we're just doing our best to get that good or service, won't gold be essentially worthless? Kind of like the tulip market way back in Holland, once the perceived value goes away, tulips were worth nothing.
Posted by: Jeff | May 08, 2008 at 08:55 AM
Actually, there's a lot I don't understand about this, but that's one question...
Posted by: Jeff | May 08, 2008 at 08:56 AM