Our Deteriorating Economic Outlook: Serious Inflation On the Horizon

Editor's Note

​Have you noticed that prices seem to be rising faster than the official inflation numbers?

Independent of increasing prices, with food price increases are hidden two additional ways:  (1) reducing quantity or weight yet offering it with a similar price; and (2) reformulating the ingredients of a processed food with cheaper, and often unhealthier ingredients.

Please read and pay attention to this article by Dr Paul Craig Roberts, Guest Columnist, with Dave Kranzler and John Williams of www. shadowstats.com​.

The Deteriorating Economic Outlook

By Paul Craig Roberts, Guest Columnist (former Assistant Secretary of the U.S. Treasury), Dave Kranzler (www.investmentresearchdynamics.com) and John Williams (www.shadowstats.com)

July 8, 2014​

The third and final estimate (until the annual GDP revisions) of first quarter 2014 real GDP growth released June 25 by the US Bureau of Economic Analysis was a 2.9% contraction in GDP growth, a 5.5 percentage point difference from the January forecast of 2.6% growth. Apparently, the first quarter contraction was dismissed by those speculating in equities as weather related, as stock averages rose with the bad news.

Stock market participants might be in for a second quarter surprise. The result of many years of changes made to the official inflation measures is a substantially understated inflation rate. John Williams (www.shadowstats.com) provides inflation estimates based on previous official methodology when the Consumer Price Index still represented the cost of a constant standard of living. The 1.26% inflation measure used to deflate first quarter nominal GDP is unrealistic, as Americans who make purchases are aware.

A reasonable correction to the understated deflator gives a much higher first quarter contraction. The two main causes of inflation’s understatement are the substitution principle introduced during the Clinton regime and the hedonic adjustments ongoing since the 1980s that redefine price rises as quality improvements. Correcting for excessive hedonic adjustments gives a first quarter real GDP contraction of 5%. Correcting for hedonic and substitution adjustments gives a first quarter real GDP contraction of 8.5%.

Realistic economic analysis is a rarity. The financial press echoes Wall Street, and Wall Street economists are paid to help sell financial instruments. Gloomy analysis is frowned upon. Even negative quarters are given a positive spin.

Years of understatement of inflation has resulted in years of overstatement of GDP growth. Thinking about the many years of misstatement, we realized that the typical computation in nominal terms of the ratio of debt to GDP is seriously misleading.

Consider that debt is issued in nominal terms and repaid in nominal terms (except for a few Treasury bonds with inflation adjustments). However, nominal wealth or nominal GDP overstates real economic strength. The debt is growing, but both the nominal and real values of the output of goods and services are not keeping up with the rise in debt.

To understand how risky the rise of debt is, nominal debt must be compared to real GDP. Spin masters might dismiss this computation as comparing apples to oranges, but such a charge constitutes denial that the ratio of nominal debt to nominal GDP understates the wealth dilution caused by the government’s ability to issue and repay debt in nominal dollars. We know that inflation favors debtors, because debts can be repaid in inflated dollars.

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JIM ROGERS: After Cyprus “Bail-in”–Your Accounts, Pension Plans, Are At Risk

JIM ROGERS: After Cyprus “Bail-in”–Your Bank Accounts, Pension Plans, Are At Risk

Think banks are pillars of ethics? Wachovia laundered money for Mexican and Columbian drug cartels. Instead of going to jail, they paid a fine and Wells Fargo merged with them.

I appreciate Tekoa Da Silva getting this Jim Rogers interview.

Jim Rogers has always struck me as being candid about what he thinks.  In a financial world where there are many hidden land mines, Rogers tries to help those who are what one calls Main Street, USA, the mom and pop businesses and investors.  I think it comes from his small town Alabama upbringing, not forgetting one’s roots.

Ask yourself:  After the wrath Congress got from bailing out the “too big to fail” banks in the 2010 mid-term elections, do you think those in Congress want a “second flogging”?  After all, getting to Congress, the way the system has evolved, might their survival instincts cause them to find another way to bail out the “too big to fail” banks should they have another nosedive?

If they don’t bail out the banks with taxpayer funds, then how is a bailout to occur if there is an assessment that “national security” is at risk?

Would they allow another MF Global raid to occur using pension funds that they’re the custodian? 

Or what about the monies on deposits with a failing bank?

What keeps them from doing a Cyprus manuever in the US–basically freezing depositor’s funds and using them as a “bail-in” with an IOU down the road should the bank in jeopardy becomes profitable again?

Do you know the “real health” of the financial institution(s) that holds your hard earned monies?

Should you be doing your due diligence research about the health of your financial institution(s)?  How much risk are you willing to take?  And what is your financial risk management strategy?

Think about it!–No Name Attorney

Jim Rogers: “I Suspect They’ll Take The Pension Plans Next; I For One Am Worried, And I’m Taking Preparations”

April 5, 2013 | By Tekoa Da Silva

I was able to reconnect for an interview with legendary Quantum Fund manager and commodities bull, Jim Rogers. This was an especially groundbreaking interview, as Jim shared thoughts on what governments around the world will be taking next, and what he’s doing right now to protect his personal bank accounts following the Cyprus collapse.

Speaking towards the frightening implications of the Cyprus banking collapse, Jim said that, “It’s been condoned [now] by the IMF, the European union, and everybody else in sight; that a government in need, can take assets. We all knew they could tax us…but this is the first time that I’m aware of, that they’ve gone in and taken bank accounts. They took gold from people in the U.S. in the 1930′s…but I’ve never heard of them taking bank accounts. [Now] they’re doing it. So be careful [because], now they can take your bank account under this precedent.“

When asked if bank account confiscation will be going worldwide, Jim said, ”Well, it’s now in their bag of tricks, but yes, they can do anything they want too now. I for one am worried and I’m taking preparations. Who knows if I’m right or not, but I’d rather be safe than sorry as all of those people who had money in Cyprus have learned. They thought they had a normal bank account…but now it’s been [taken] with the sanctions of many governments and institutions.”

Jim also urged that, “If people have money in any account, anywhere in the world…cut it down to under the guaranteed amount. They might take that too someday when things get desperate, because the precedent has been set, but that’s where I would start if I had money in the bank anywhere in the world.”

With respect to which assets governments will likely be coming for next, Jim said,401k plans, IRA’s, and pensions plans which the government knows about [may be next]…They’re rationale would be, ‘Well most people haven’t been doing well in their IRAs and pension plans for the past several years, so we’re going to help you. We’re going to take your pension plan and give you government bonds so that you have a guaranteed return.”

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