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Why You Should Be VERY Afraid of Inflation

Phoenix Capital Research's picture




 

 

For the last 80 years or so, financial theory has held that inflation and deflation were mutually exclusive events. We've now seen that idea go up in smoke as deflation affects home prices and incomes in the US at the very same time that we experience inflation in energy and food prices courtesy of the Fed's insane money printing.

 

Indeed, Ben Bernanke is a disciple of the belief that to battle deflation, one must inflate the financial system/ economy. Never mind that history has shown this to be total bunk (monetization has always inevitably led to higher inflation), Bernanke is an academic and has devoted his life's work to this misguided belief.

 

As a result, the man with the greatest control over the value of the US Dollars you own is a man who is so hell-bent on proving his theories that he can and is completely ignoring hard evidence that refutes them.

 

Case in point, Bernanke and the Fed continually state that inflation is "contained" or "transitory." This is simply incredible when you consider that food prices, energy prices, rent, and other measures of the cost of living are up double-digit percentage points year over year.

 

In fact, nothing proves just how insane these people are (either that or they're pathological liars) than the claim that because iPads are other technological items are becoming cheaper, that overall the cost of living is not increasing much.

 

Yes, you read that correctly. High ranking members of the US Federal Reserve believe that because a one time purchase of an iPad is cheaper, the increase in the daily cost of food and energy is balanced out.

 

I bring all of this up, because the Fed is so afraid of de-flation that it is ignoring the clear signs that we are heading towards massive inflation and possibly even hyperinflation.

 

Throughout history all episodes of hyperinflation have been caused by the same actions: the monetization of debt to fund massive deficits.

 

This policy works temporarily until the country in question loses credibility in the bond market (bond investors are no longer willing to lend it money). At that point the country enters a currency crisis and experiences hyperinflation.

 

Sounds familiar, doesn't it?

 

Indeed, the US Fed bought 73% of all debt issued last year to fund the US's deficit. The only reason we've been able to get away with this is because the US has the most credibility of any country in the world (we've never defaulted on our debt).

 

However this credibility only goes so far. And we're on very very thin ice: a 10% deficit and a Debt to GDP ratio over 100%.

 

I will be blunt here, we are following the precise formula for hyperinflation to a "T." The only reason it hasn't hit yet is because the US hasn't lost all credibility yet. But at this rate, it's only a matter of time.

 

So if you're no preparing for inflation already, you need to get moving now. The Powers That Be are well aware that we're in big trouble. Consider Mitt Romney's recent admission that a former head of the NY Fed admitted that as soon as the Fed stops buying all the US debt we'll have a failed Treasury auction and interest rates will soar.

 

Make no mistake, the time to prepare for higher inflation is NOW before this happens. Some folks will walk out of this mess winners. Most will walk out as losers.

 

At Phoenix Capital Research, we’re taking steps to insure our clients are among the winners. We have a host of FREE Special Reports devoted to helping readers prepare for the coming Debt Implosions in both the US and Europe.

 

We also feature a special report devoted to inflation as well as which investments will perform best during periods of high inflation (periods like the one we’re entering).

 

All of this is available 100% FREE at www.gainspainscapital.com

 

Best Regards,

 

Phoenix Capital Research

 

 

 

 

 

 

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Wed, 10/03/2012 - 12:26 | 2852121 The Trade Group
The Trade Group's picture

Same ole crap from Spam Summers. Keep posting buddy, sooner or later you will be right.

Wed, 10/03/2012 - 12:12 | 2852069 lasvegaspersona
lasvegaspersona's picture

How can there ever be a 'failed' treasury auction when the Fed is there to buy all?

I must be having difficulty with the definition of 'failed'.

Wed, 10/03/2012 - 12:06 | 2852050 Unbezahlbar
Unbezahlbar's picture

Is inflation sort of like levitation?

Wed, 10/03/2012 - 11:38 | 2851949 dumpster
dumpster's picture

a news letter writer who loves to report what happened .. and misses the  point of giving information that would help for future use.

Very good if you like to get instructed after the horse is out of the barn with instructions if how to close the door...$250 please

Flash horse escapes now close door

 

Wed, 10/03/2012 - 11:27 | 2851922 Toxicosis
Toxicosis's picture

Isn't this the same Graham Summer's who adamantly stated that there would never, never, ever, ever, be a new QE.  He blew the deflation horn so loudly to deafen his probably three or four subscribers and has now, as a result of reality, changed his tune.  Isn't it great to be a follower Graham cause you certainly missed the boat when it came to competent leadership.

Wed, 10/03/2012 - 12:27 | 2852128 Tinky
Tinky's picture

No – you're completely confusing him with a different Graham Summers, ao please apologize.

Wed, 10/03/2012 - 11:30 | 2851787 Vooter
Vooter's picture

Inflation has been the de facto POLICY of the U.S. government for at least the last 80 years. I don't even know why we're talking about this. Consumer prices have inflated by roughly 25% over the last decade, 175% since 1980, 450% since Nixon closed the gold window in 1971, 1,100% since World War II, and around 2,000% since the Fed was created in 1913. Just because the public has been trained like monkeys--by year after year after year of "moderate" price increases--to believe that inflation is some natural phenomenon like gravity or electricity doesn't mean that the government's policy wasn't actually to inflate forever. Just because wages in the U.S. were inflated right along with prices--thanks to the fact that the U.S. economy has largely been a magical, reserve-currency-fueled closed loop for the last half century, in which salaries for American workers could be jacked up far beyond what other people around the world were making for the same type and amount of work--doesn't mean that American wages will continue to rise, especially as those workers from around the world begin to demand more of the good things in life...along with a willingness to work for a fifth or a tenth of what the average American worker has come to expect as his or her birthright to get them. You've been had, America--and the people responsible (Keynes, FDR, Nixon, et al.) are all in their graves, where they KNEW they'd be by the time the shit hit the fan. Get ready for America's very own dark ages--the only thing that will bring equilibrium back to this system (if we're lucky) is years and years of poverty and suffering...

Wed, 10/03/2012 - 11:52 | 2851997 centerline
centerline's picture

Can't imagine who would junk this.  You speaketh the truth.  The forbidden truth... that we have all been had and the jig is up.  The collapse has already begun and cannot be stopped.  It can only be slowed here and there.  Globalization via cheap energy... coupled with a system built on perpetual (and unsustainable) growth... is reaching it's inevitable conclusion.

Shit, my daughters AP Human Geography book has an entire section that focuses on Mathusian theory, population control, etc.  If that isn't a sign of the times (changing aggenda's), what is?

Wed, 10/03/2012 - 10:39 | 2851783 moonstears
moonstears's picture

"The only reason we've been able to get away with this is because the US has the most credibility of any country in the world (we've never defaulted on our debt)."

I protest, Sir: see 1933, defaulted on the US taxpayer. See 1971, defaulted on the world. See 1975 Ford rectified to some extent the US taxpayers ability to store again a "value" with said "never defaulted" debt based currency.

Wed, 10/03/2012 - 12:25 | 2851937 Revert_Back_to_...
Revert_Back_to_1792_Act's picture

.

 

Wed, 10/03/2012 - 10:29 | 2851748 lamare
lamare's picture

"For the last 80 years or so, financial theory has held that inflation and deflation were mutually exclusive events. We've now seen that idea go up in smoke as deflation affects home prices and incomes in the US at the very same time that we experience inflation in energy and food prices courtesy of the Fed's insane money printing."

 

It's not that this has not happened before, nor that this has never been described:

http://gonzalolira.blogspot.nl/2011/02/inflation-hyperinflation-and-real.html 

Thus, in an inflationary environment, real estate prices either remain static or indeed fall on a nominal basis, even as inflation is debasing the currency, because real estate sellers will not find buyers willing to take on usurious debt in order to buy the property.

This is how real estate prices fall, even as prices for near-term necessities—food, fuel—rise. This is how you have a real estate collapse, even as you have inflation.

Don’t believe me? Well, I can empirically prove this. During the 1979–‘83 inflationary recession, this is exactly what happened in the United States: Nominal real estate prices were essentially flat, even as inflation peaked at 15%. The same in the UK during the early Seventies, in fact the same in every advanced economy that experienced low-double-digit inflation in the post-War period: Real estate prices remained nominally flat or even fell, as inflation rose and the currency was debased.

[...]

And when there is hyperinflation, real estate prices of all sorts—residential, commercial, industrial—go into a free-fall: Their prices crash and burn, completely and utterly.

This situation—crazy though it may sound—is exactly what happened in Argentina, in 2001: The Argentine peso went into a hyperinflationary breakdown, the causes of which are irrelevant to the present discussion. But because of this, no bank would lend money to purchase any real estate.

Thus, real estate prices plunged in Argentina.

I have a family friend here in Chile, an attorney named Hernán P., who made one of the shrewdest investments ever: At the height of the Argentine crisis in 2001, he bought an apartment in one of the most fashionable neighborhoods in Buenos Aires: A lovely and luxurious full-floor apartment, across the street from the Four Seasons.

It’s price before the crisis? $650,000. The price Hernán P. paid at the height of the crisis? Less than $90,000. Here’s the kicker: He was the only buyer. Of course, he had to pay in cash—no mortgage loans were available. In fact, he had to pay incash cash: He was required by the seller to close the transaction with actual physical dollars.

 

 


Wed, 10/03/2012 - 11:32 | 2851942 LMAOLORI
LMAOLORI's picture

 

 

lamare excellent comment we had a home in the early 80's that we could not have sold for many years without losing money. We did not sell it until 2006 right at the very peak got out just in the nick of time. I wanted to sell it sooner (butI had to convince my hubby).  I expected a crash because incomes were not keeping up with housing expenses and I realized that people were buying with zero down exotic mortgages that had a 3 to 5 year refi. I then rented until I found my little slice of heaven out away from the urban area and paid cash for it 45% less then the original valuation. It wasn't a foreclosure it was an estate so it was in excellent condition. My plan was to buy some acreage on which to grow & raise food to prepare for the coming collapse ala Argentina.

The U.S. may have defaulted in the past but since we are now the World's Reserve Currency we won't Default unless it is done on purpose and that's highly unlikely for several years if at all since politco's will not want to give up that power. What I do see coming is massive inflation coupled with tax hikes and cut backs on entitlements. When the entitlements are cut then we will likely see an increase in lawlessness just like Argentina experienced coupled with cut backs in law enforcement. Out here we are surrounded by well armed neighbors who are like minded knowledgeable about self sufficiency. It is definitely possible to have deflation and inflation at the same time but I see inflation increasing rapidly on the things that you really need to live, after all you can't eat an Iphone.

Wed, 10/03/2012 - 11:58 | 2852023 RationalPrepper
RationalPrepper's picture

+1 for your response:  We're currently renting a farmhouse and have a huge garden, chickens, and hopefully more small livestock next year.  We have an undeveloped, wooded property we'd like to build on.  Given the current environment and what you see coming, should we:

(1)  build soon and take advantage of very low rates?

(2) keep renting and sell undeveloped land?

(3) keep renting and build after rates shoot up and home prices plummet futher?

**Of course, (3) assumes that new construction would also be cheaper if existing home prices crash more.

 

Wed, 10/03/2012 - 13:14 | 2852286 LMAOLORI
LMAOLORI's picture

 

 

I think you were talking to me RationalPrepper at least I hope so lol. I would assume being a prepper you will want to move out away from the urban area so I'll base my response accordingly. Have you considered buying a place that is already built? New construction is relatively still expensive. In some respect's housing is like a car once you drive it off the lot it loses value especially now that it's no longer in a bubble. In the outlying area's there are some really good bargains to be had for less then the replacement value. If it were me I would sell the land and find one pre-built and now would be the time to do it especially if you have cash and don't be afraid to make low ball offers. If the real estate agent is hesitant find one who isn't but also keep in mind they have to present offer's irregardless of whether they like them or not.  If you don't have cash with the extremely low rates if things didn't collapse and you had an assumable mortgage you would look like a genius in the years to come. Homes in the outlying areas are pretty much at the lowest they will be IMO. Some area's are actually rebounding the Twin Cities is an example and investor's are buying up homes for rentals. Though I still personally feel that if you could buy it outright no debt and you treat it as a place to live and prepare is ultimately the best. You will have gotten it at a bargain price anyway and you always need shelter. Look at the taxes in the area you are considering even within the same County they can vary widely they do here and my place is in the lowest taxed area.

Wed, 10/03/2012 - 14:01 | 2852499 RationalPrepper
RationalPrepper's picture

Thanks, Lori, I appreciate the response.  In hindsight, I sometimes wish I hadn't bought the raw land.  There are old farmsteads that can be bought on the cheap around here.  But then you inherit a plethora of potential maintenance issues and/or unforeseen problems.  If we built small and efficiently, at least we'd know what we have.  Plus the land has more than enough timber to provide all our heating needs.  But your points are valid - I worry about existing home prices falling but building materials going up.  In that scenario, you're advice would be very sage.  I've been keeping my eyes open for existing farmsteads...maybe I'll consider listing the land.

Wed, 10/03/2012 - 15:16 | 2852821 LMAOLORI
LMAOLORI's picture

 

 

Your most welcome. I understand about the old farmhouses I didn't want an outdated structurally or mechanically unsound behemoth either but you can find something a bit newer. My place is actually a 1968 Rambler or Ranch with a full finished basement.  They were still built pretty good in those days and it had been updated with Anderson Thermal Pane Windows, new Siding, etc.  Either way you go I wish you the best.

 

Wed, 10/03/2012 - 11:46 | 2851970 centerline
centerline's picture

You are my idol!  I knew something was really wrong in 06, but lacked the courage to pull the trigger on what I knew was the right thing to do.  Tough with kids in a good school district and family near by to just up and sell when the balance of the family is sheeple and the prospects of renting in the same area where thin.  I try not to kick myself over all this though.

I fully expect most city and suburban/urban areas to become much more violent... at an accelerating pace.  Is already noticeable to me... just not so much to others who don't watch the game (are glued to to the boob tube instead).  One of my nightmare scenerios is acually a semi-functioning system (or martial law scenerio) where crime is off the charts (my family at serious risk) but I still have to go to work everyday (for any number of reasons).

Thu, 10/04/2012 - 00:14 | 2852174 LMAOLORI
LMAOLORI's picture

 

 

Thank you but I was also in a different position then you  Glad you aren't kicking yourself you can prepare in other ways knowing what may come is alot more then most. 

Best Wishes you'll do fine if you pay attention and prepare.

Wed, 10/03/2012 - 10:17 | 2851703 LMAOLORI
LMAOLORI's picture

 

 

Be Afraid Very Afraid indeed once that Inflation Genie is out of the bottle our taxes will have to rise rapidly and along with it will be the prices of everything else you really need to live. Yes I know food has gone up but you ain't seen nothing yet.

Great article Graham 

Wed, 10/03/2012 - 12:17 | 2852092 Citxmech
Citxmech's picture

The concept of Bi-flation has been around for quite awhile (price rise for necessities typically purchased with cash (utilities, food, gas) w/concurrent deflation in large, discretionary credit-based purchases (homes, cars, etc.))  I believe this is exactly the phenomena we are witnessing right now.  This, coupled with declines in employment/real wages and massive printing is setting the stage for both to continue their respective spirals.

Wed, 10/03/2012 - 10:12 | 2851679 Joe Davola
Joe Davola's picture

...one time purchase of an iPad...

 

Isn't there a new, must have model like every 6 months or so?

Wed, 10/03/2012 - 10:34 | 2851766 MassDecep
MassDecep's picture

...one time purchase of an iPad...Isn't Obama gonna buy me one if I vote for him?

That is what matters the most.....

We get what we deserve.

Wed, 10/03/2012 - 10:08 | 2851660 Big Corked Boots
Big Corked Boots's picture

{yawn}

 

Wed, 10/03/2012 - 17:08 | 2853341 max2205
max2205's picture

you woke me up.....zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz

zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz

Wed, 10/03/2012 - 10:04 | 2851646 AT
AT's picture

Wait, isn't Europe going to crash!? I'm confused. Oh, sorry. New investment theme from GS to replace all his lost subscribers. 

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