Yes, it is true, if you look at the economy, unemployment, demographics, home prices, incomes, and investment returns, the deflationist argument looks like the correct one. In fact, if you factor in all the debt that is about to be defaulted on, you are going to see the purest form of the very definition of deflation, a contraction in the money supply.
So why aren’t we seeing deflation? Why aren’t we seeing Dow 1,500 and Gold $750? The reason we are not seeing deflation is because deflation is the stated enemy of the western central banks. Deflation is a natural force that we should all be experiencing right now if it were not for all the money printing at the FED and ECB.
Deflation is bad for the government, less tax revenue, less war, and it is definitely not good for re-elections. Inflation, however, gives the masses the feeling of wealth, homes are up, stocks are up, maybe even incomes are up. Plus, the government revenues are up and the debt the government owes can be paid back with inflated dollars.
Now the reality for the people is that inflation hurts because it acts as a hidden tax that steals your wealth and future earnings, it destroys savings. It also hurts the poor specifically as it makes food and energy more expensive, the largest expenses for those that are impoverished.
Here is what the natural forces of deflation are up against.
The above chart is what the purest form of inflation looks like, this is an increase in the money supply. The result of this is higher oil and food prices.
How high can this inflation, all this currency in circulation cause oil prices to go? Well, in our opinion, oil will continue to rise until it wrecks the place, we believe we are easily looking at $130 per barrel this year. Throw in a new war in the middle east or even the threat of war, and we can very well see $150-200 a barrel oil. This would equate to about $6-10 gas price per gallon throughout the U.S., something that will absolutely grind our economy to a halt. Now the sustainability of this price is probably already nearing its breaking point. Once Americans see $4-5 gas, that is going to force Americans to cut back which should cause some demand destruction and hopefully rein in the price. We say hopefully because right now, that just isn’t the case.
Oil demand is down 6% in the past 12 months and inventories are at 6 month highs. What these numbers show you is that the economy is not in recovery, demand for oil is down, yet the price keeps rising. This is a result of the currency itself losing value, and our warning to all who will listen, is that this is a trend that will continue. If there is one thing that you can count on, it is that the central banks will keep printing. Remember, deflation is their enemy.
Right now the average price for a gallon of gasoline in the U.S. is $3.70. Looking at places like California and New York, gas prices are already over $4 per gallon. It is safe to say that these areas are already seeing demand destruction, but not just for gas, for all areas of the economy. Houses that may be further away from centrally located jobs like the city of Los Angeles, houses that may have been popular when gas was $2 per gallon, may no longer be realistic if those homeowners are driving 1 hour to work in traffic. More money spent on fuel, means less money for other goods like food, clothes, and movie tickets.
We are in a vicious economic battle between the natural forces of deflation and the man made forces of inflation. FutureMoneyTrends.com
believes that our members should prepare for both, severe deflation in non-need items and radical price increase for ‘need items.’ The definition of need items is a bit tricky, since some houses and some cars are need items, however, a beautiful house built in the desert is a non-need item to the majority, especially since those areas lack jobs. Vehicles are need items, but once gas is over 5 bucks, those $50,000 SUV’s with the special spinning rims will see a major price collapse. Non-need items should see major demand destruction, mainly because ‘need’ items will soak up all the available cash from consumers, need items being food and energy.
The best economist we believe that meets our definition of what to prepare for is John Williams of ShadowStats.com, he is forecasting a hyper-inflationary depression. Hyper-inflation is when there is a loss of faith in the currency itself, which is exactly what is happening today all around the world.
Russia US Treasury Holdings ($BN)
The above chart shows that at least one major nation is ‘dumping the dollar.’ This trend is being seen all around the world to a lesser extent, never the less, it is a growing trend. Nations are moving away from the dollar, doing transactions in their own currencies and even gold.
To those that say, wait a minute, “why would we see rising oil prices if you are projecting a depression?” It all goes back to the central banks devaluing the worlds’ currencies. And this is exactly what the deflationists are missing, you can have no jobs and a 50% unemployment rate, but if no one wants the currency, you will not have deflation in that specific currency. We expect radical deflation when it comes to things priced in gold and silver, just not federal reserve notes.
In our opinion, preparing for both hard times in the economy and severe price inflation is the best thing a person can do right now. As we have mentioned many times, buying long term food storage and living a debt free life is priority number 1. Once you feel that you have some wealth to protect, you should consider buying hard assets, both in the physical realm and in owning the shares of companies that control and produce hard assets like gold, oil, and other commodities. We also consider cash flowing real estate, apartments, farmland, high demand commercial property a hard asset as well, but only if it can cash flow. Your education is also a big investment that should be taken very seriously, now that you know the truth about government statistics and forecasts, choosing the right income strategy for the next 10-20 years should be focused on what type of economy we will be in. Producing wealth in the short term and long term is important, that is why we profile companies that are long term hard asset ideas and also companies that are just day trades. We want our members to see that you can thrive in this environment if you just apply the knowledge you have.
99% of the population will suffer greatly from the great currency devaluation and depression. We hope that all of our members will continue to learn the truth about the economy and protect themselves and their families.