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Guest Post: What to Do When - Not If - Inflation Gets Out Of Hand
Submitted by Jeff Clark of Casey Research,
The cheek of it! They raised the price of my favorite ice cream.
Actually, they didn't increase the price; they reduced the container size.
I can now only get three servings for the same amount of money that used to give me four, so I'm buying ice cream more often.
Raising prices is one thing. I understand raw-ingredient price rises will be passed on.
But underhandedly reducing the amount they give you… that's another thing entirely. It just doesn't feel… honest.
You've noticed, I'm sure, how much gasoline is going up.
Food costs too are edging up.
My kids' college expenses, up.
Car prices, insurance premiums, household items – a list of necessities I can't go without. Regardless of one's income level or how tough life might get at times, one has to keep spending money on the basics. (This includes ice cream for only some people.)
According to the government, we're supposedly in a low-inflation environment. What happens if price inflation really takes off, reaching high levels – or worse, spirals out of control?
That's not a rhetorical question. Have you considered how you'll deal with rising costs? Are you sure your future income will even keep up with rising inflation?
Be honest: will you have enough savings to rely on? What's your plan?
If price inflation someday takes off – an outcome we honestly see no way around – nobody’s current standard of living can be maintained without an extremely effective plan for keeping up with inflation.
It's not that people won't get raises or cost of living adjustments at work, nor that they will all neglect to accumulate savings.
It's that the value of the dollars those things are in will be losing purchasing power at increasingly rapid rates. It will take more and more currency units to buy the same amount of gas and groceries and tuition. And ice cream.
I'm not talking science fiction here.
When the consequences of runaway debt, out-of-control deficit spending, and money-printing schemes come home to roost, it's not exactly a stretch to believe that high inflation will result.
We need a way to diffuse the impact this will have on our purchasing power. We need a strategy to protect our standard of living.
How will we accomplish this?
I suspect you know my answer, but here's a good example. You've undoubtedly heard about the drought in the Midwest and how it's impacted the corn crop. The price of corn has surged 50% in the past two months alone.
Commodity analysts say the price could rise another 20% or more as the drought continues.
(Click on image to enlarge)
While the price of gold constantly fluctuates, you would have experienced, on average, no inflation over the last 30 years if you'd used gold to purchase corn. Actually, right now, it'd be on the cheap side.
When you extrapolate this to other food items – and virtually everything else you buy – it's very liberating. Think about it: gold continues its safe-haven role as a reliable hedge against rising inflation.
I believe that those who save in gold will experience, on average, no cost increases in the things they buy and the services they use.
Their standard of living would not be impacted.
I think this kind of thinking is especially critical to adopt when you consider that supply and demand trends for gas and food dictate that prices will likely rise for a long time, and perhaps dramatically.
So how much will you need to make it through the upcoming inflation storm and come out unscathed?
Like all projections, assumptions abound. Here are mine for the following table. I'm assuming that:
- The price of gold, on average and at a minimum, tracks the loss in purchasing power of whatever currency you use, and that it does so from current prices. Given gold's history, this is an easy assumption to make.
- Gold sales, over time, capture the gain in gold and silver so that your purchasing power is preserved. (This doesn't mean I expect to sell at the top of the market; I expect we'll be selling gold as needed – if gold has not itself become a widely accepted currency again.)
- We pay taxes on the gain. This will decrease our net gain, but there should still be gains. In the famous Weimar Germany hyperinflation, gold rose faster than the rate of hyperinflation.
To calculate how much we'll need, I looked at two components, the first being average monthly expenses. What would we use our gold and silver for? From corn to a house payment, it could be used for any good or service. After all, virtually nothing will escape rising inflation. Here are some of my items: groceries, gas, oil changes and other car maintenance, household items, eating out, pool service, pest service, groceries and gas again, eating out again, vitamins, movie tickets, doctor appointments, haircuts, pet grooming, kids who need some cash, gifts, and groceries and gas yet again. Groceries include ice cream, in my case. How many ounces of gold would cover these monthly expenses today?
And don't forget the big expenses – broken air conditioner, new vehicle, vacation… and I really don't think my daughter will want to get married at the county rec hall. How many ounces of gold would I need to cover such likely events in the future?
The point here is that you're probably going to need more ounces than you think. Look at your bank statement and assess how much you spend each month – and do it honestly.
The other part of the equation is how long we'll need to use gold and silver to cover those expenses. The potential duration of high inflation will dictate how much physical bullion we need stashed away. This is also probably longer than you think; in Weimar Germany, high inflation lasted two years – and then hyperinflation hit and lasted another two. Four years of high inflation. That's not kindling – that's a wildfire roaring through your back yard.
So here's how much gold you'll need, depending on your monthly expenses and how long high inflation lasts.
Every corn-based product on the grocery shelf will soon take a lot more dimes and dollars to buy. But wait – what if I used gold to buy corn?
| Ounces of Gold Needed to Meet Expenses During High Inflation | ||||||||
| Monthly expenses in US dollars | Monthly expenses in gold, oz* | Inflation Duration | ||||||
| 6 months | 1 year | 18 months | 2 years | 3 years | 4 years | 5 years | ||
|
$500
|
0.31
|
1.9
|
3.7
|
5.6
|
7.5
|
11.2
|
15.0
|
18.7
|
|
$1,000
|
0.63
|
3.8
|
7.5
|
11.3
|
15.0
|
22.5
|
30.0
|
37.5
|
|
$2,000
|
1.25
|
7.5
|
15.0
|
22.5
|
30.0
|
45.0
|
60.0
|
75.0
|
|
$3,000
|
1.88
|
11.3
|
22.5
|
33.8
|
45.0
|
67.5
|
90.0
|
112.5
|
|
$4,000
|
2.50
|
15.0
|
30.0
|
45.0
|
60.0
|
90.0
|
120.0
|
150.0
|
|
$5,000
|
3.13
|
18.8
|
37.5
|
56.3
|
75.0
|
112.5
|
150.0
|
187.5
|
|
$10,000
|
6.25
|
37.5
|
75.0
|
112.5
|
150.0
|
225.0
|
300.0
|
375.0
|
|
$20,000
|
12.50
|
75.0
|
150.0
|
225.0
|
300.0
|
450.0
|
600.0
|
750.0
|
| *Based on $1,600 gold price | ||||||||
If my monthly expenses are about $3,000/month, I need 45 ounces to cover two years of high inflation, and 90 if it lasts four years. Those already well off or who want to live like Doug Casey should use the bottom rows of the table. How much will you need?
Of course many of us own silver, too. Here's how many ounces we'd need, if we saved in silver.
| Ounces of Silver Needed to Meet Expenses During High Inflation | ||||||||
| Monthly expenses in US dollars | Monthly expenses in silver, oz* | Inflation Duration | ||||||
| 6 months | 1 year | 18 months | 2 years | 3 years | 4 years | 5 years | ||
|
$500
|
17.9
|
107.1
|
214.2
|
321.3
|
428.4
|
642.6
|
856.8
|
1,071.0
|
|
$1,000
|
35.7
|
214.3
|
428.5
|
642.8
|
857.0
|
1,285.6
|
1,714.1
|
2,142.6
|
|
$2,000
|
71.4
|
428.5
|
857.0
|
1,285.6
|
1,714.1
|
2,571.1
|
3,428.2
|
4,285.2
|
|
$3,000
|
107.1
|
642.8
|
1,285.7
|
1,928.5
|
2,571.4
|
3,857.0
|
5,142.7
|
6,428.4
|
|
$4,000
|
142.9
|
857.1
|
1,714.2
|
2,571.3
|
3,428.4
|
5,142.6
|
6,856.8
|
8,571.0
|
|
$5,000
|
178.6
|
1,071.4
|
2,142.8
|
3,214.3
|
4,285.7
|
6,428.5
|
8,571.4
|
10,714.2
|
|
$10,000
|
357.1
|
2,142.6
|
4,285.0
|
6,427.8
|
8,570.4
|
1,2855.6
|
17,140.8
|
21,426.0
|
|
$20,000
|
714.3
|
4,285.7
|
8,571.4
|
12,857.0
|
17,142.7
|
25,714.1
|
34,285.4
|
42,856.8
|
| *Based on $28 silver price | ||||||||
A $3,000 monthly budget needs 1,285 ounces to get through one year, or 3,857 ounces for three years.
I know these amounts probably sound like a lot. But here's the thing: if you don't save now in gold and silver, you're going to spend a whole lot more later.
What I've outlined here is exactly what gold and silver are for: to protect your purchasing power, your standard of living.
It's like having your own personal financial bomb shelter; the dollar will be blowing up all around you, but your finances are protected.
And the truth is, the amounts in the table are probably not enough. Unexpected expenses always come up. Or you may want a higher standard of living. And do you hope to leave some bullion to your heirs?
It's sobering to realize, but it deserves emphasis: if we're right about high inflation someday hitting our economy…
Most people don't own enough gold and silver.
If you think the amount of precious metals you've accumulated might be lacking, I strongly encourage you to put a plan in motion to save enough to meet your family's needs.
We have top recommended dealers in BIG GOLD, ones we've vetted that are trustworthy and have highly competitive prices. We also recommend a service that will deduct whatever amount you chose from your bank account and buy bullion for you automatically. And now, given how concerned we've been about the inflation that's coming, we've actually started our own service. You can check it all out in the current issue of BIG GOLD, risk-free. I can tell you that purchase premiums are incredibly low, due to a proprietary system that bids your order out to a network of dealers that compete for your business. We're already using it, and the response from other investors has been tremendous.
Whatever plan you adopt, my advice is to make sure you have a meaningful amount of bullion to withstand the firestorm that's almost mathematically certain to occur at this point. And now you know exactly how much gold you're going to need.
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Tuna can go up as much as they want . We arent supposed to eat more than one can a week because of the high mercury content. Somehow we have managed to ruin one of natures perfect foods....
Dude, was just one of many examples picked at random.
Yeah, but with enough mercury laden tuna, you can wash your gold sluice and get enough PM to buy...
more tuna.
meh, you probably throw out more food because it goes bad than you save buy hoarding food.
There's truth in that, for sure. But here at the compound, we've started rotating the stock so we use the old stuff first.
Usually.
Rotating the cans and bags takes a little practice. Also, the old canned goods are quite good long after their supposed pull date. Except for the canned whole chicken, which can't get worse, but it also doesn't get any better.
FIFO - First In, First Out...get that marker working.
I don't know about Costco prices, I don't pay want to pay a cover charge to go grocery shopping. Besides I live alone and can't use the large quantity discounting.
I do know that I like to have salmon patties about once a month, reminds me of when my mom was alive, a one pound can of red salmon went from $4.99 to $7.99 then back down to $6.99 but also down to 14 ounces, now though I can only find it in a 5 ounce tuna sized can and that is $5.99. That is an increase from 31 cents per ounce to $1.20 per ounce, a 400% increase in a year. No problem, I am sure my veteran's disability/social security COLA this year will be a couple hundred percent right?
Sure some things have only gone up a little bit but nothing has gone down, and many things have more than doubled. What gets me is coffee and sugar, the last time I saw increases in coffee prices like this was in the 70's but that was mostly due to really horrible harvests caused by frost and freezing from Brazil to Mexico. So they said. And sugar, global wholesale market price has been steady at 19 cents so the formerly 5 pound bag that now has 4 pounds in it contains only about 76 cents worth of sugar. And the sugar companies don't have to do anything to it but bag it and send it to your store. So, why has it gone up so much? Their debt/overhead costs may have risen but the sugar itself has not, it is profitable as crack, they can afford to absorb a lower margin.
You answered your own question on sugar prices. Paper prices (for the bags) have gone way up. And transport prices (hello, gasoline!) have gone up as well.
Too bad there's not a photo archive of all the reduced oz going on in packaging. You google these things and no find. I wish I would have thought to take a pic of my Great Grains box of cereal 2 years ago and compare it to thin slim box it is now.
You can find images for both using Google images and searching during a certain date range. Out of curiosity, I checked on your Great Grains cereal (Cranberry Almond version) from 2 years ago. Looks like you were getting 14 oz. of cereal back then and now you only get 13 oz.
There is no photo archive of reduced oz but there is an archive of photos showing the USA's infrastructure when it was built and how it has now crumbled. These things go hand in hand.
What? You aren't making icecream yourself at home yet using cream from a neighbor's cow? :)
I tried but the cow won't fit in the freezer.
Move to Alaska?
I want to know where the entrepreneurial lenders are against gold collateral? If you want gold hording to go mainstream your going to need a source where folks can borrow against their gold bricks to conduct short term day to day business in a way that is liquid and convenient at reasonable rates.. I would think.
Sure ... send me your gold and I'll send you some fiat. Lot's of luck getting your gold back.
Love,
JP Morgan
I mean it in this context:
Crackhead johnny runs out of cash and wants to sell you his harley for half it's current market. You realize your only holding day to day spending cash because you keep everything tied up in clean pure gold. business man x offers to lend you 3k and holds 2 of your 1oz. gold eagles as collateral at say 10% apr. You grab the cash, buy the Harley, flip it for a quick double and hurry back over to business man x to pay him off and breath a sigh of relief that you got your precious pure clean gold coins back and even now have a few extra bucks to buy more.
I'm talking about creating a liquid market at the street level kinda thing.
I believe that's called a pawn shop. Although most of them prefer the nebulous value of jewelry to the defined value of bullion.
Agreed. You can pawn gold for loans but the interest rates are crazy.
Also, unlike power tools, the gold they want to sell doesn't have a great discount price.
When is the operative word; If is a word best left to those who still feel that there's a difference between candidates for the presidential election and that we actually have a choice.
One place where price increases seemed to be slower historically just started going crazy, and that really got my attention. Tipping point indicator? This year, thrift store prices for clothing have spiked, and in many cases, seem like they've doubled for functional items like Carhartt pants and other functional gear. Are fewer people buying new stuff and holding on to the old? Are more people buying basic, functional gear at the thrift stores thus decreasing supply?
The "news" has been quiet lately about the dangers of precious metals. Makes sense, as the prices have been fairly range-bound. I expect that to change again soon.
how about you, tyler?
yes or no?
<--< YES
<--< NO
slewie opinion poll: should US Mint-produced gold and silver coinage be restored as LEGAL TENDER in the US as per the US Constitution and not subject to the fuking "collectibles" and OTHER TAXES?
yes or no? VOTE!
...please... L0L!!!
That one "no" is a serial junker!
The capital gains thing is the kicker there. If you pay no capital gains tax on your PM upon exchanging it for dollars or whatever, that's something serious right there. I doubt it would happen because in our control economy, the winners and losers are picked by some pre-allocation or lottery, and TPTB can't have "arbitrary wealth" circulating without close monitoring (as in credit card purchases), yoking (tax or inflation), downright confiscation, or declaring all profit illegal.
But I'm stacking anyway.
The sticking point is that with cash, there's already a tax we've been bemoaning through this entire thread, INFLATION. Or rather, price increases.
With PM, the tax would need to be more obvious since it can't be hidden within the structure of the money itself.
Are you going to pick one thread to consolidate the votes from all the other threads later today?
How do you stop it from walking out of the country?
Do you think the metal detectors at airports are for finding weapons? I don't.
Commercial airports are for muppets.
The food packaging industry has been doing just that since the early 2001 or 2, a can of beans back then had a lot more beans and less liquid than one now, the ones now apart from the liquid, they are not filled to the top, same for just about everyrthing else, lentils, corn, chili,vegetables, soups (they are more runny now and don't go all the way to the top), spaghetti sauces used to be thicker, in fact every packaged item has less of the stuff than back then, more liquid and fillers and on top of that prices have also increased, what they call a two pronged approach to raising prices and more is coming over the next 12 months due to the world drought...................
fuckers, no wonder profits kept raising for them............
but hey...... no inflation according to the chairsatan bernank.........Obama and their fucking cronnies.....and other crooks....inflation is under control!!!!
watch for the "dry weight" vs. "net weight" on canned beans - noticed this last year, mainly in Trader Joe organic canned beans (rarely do supermarkets, so can't comment there).
the cans are about 2/3 full. . . or 1/3 empty, depending on your mood. . . (and 10c more per, lol)
Jimmy Rogers is saying QE3 has already started.
I agree with the general premise of the article. The only way out for most people is to reduce spending and put the rest in metals.
Having said that, it's easy to forget that the "essentials" are really minimum. Some clothes or another on your back, some shelter or another, and some food or another.
Believe me, Americans haven't seen anything yet when it comes to just paying for the essentials. And that's why they're so scared! They've lived like overfed pigs for so long that they think all manner of consumer items are needed when they're really not.
And the cost of essentials will finally decrease when the old fogies meet their end and are recycled back into the planet.
Timing is everything. According to Bible prophecy, the trip wire for the coming inflation will be Iran's War on the West.
Gee, I must have read an earlier edit of the Bible.
Iran's coming war on the west ... Yeah, that's why Iran stationed 3 aircraft carriers off the coast of the USA.
Dipstick
That would be your city of london approved book of prophecy revision D, containing 2 millenia of stock market quotes?
A "pound" of bacon becoming 12 oz.
"Wow, that's the same price it was last year, just only 4 oz. less."
I swear to God they are going to make a dozen eggs ten of them 'ere long.
According to your how much is enough graphs, I have 6 years living expenses.
I want twenty.
The world would not survive more than two years of hyperinflation during a general chaotic reset. The hyperinflation better be short-lived, or it will be the same for most of us.
If things get too bad, either chaos will pull the plug on us, (or it will likely be done intentionally). The elites will get tired of fighting us, trying to impose their regime. And once tired of it, they will flush us down the proverbial toilet as they leave to secure themselves in their bunkers and fantasy islands.
those of us who lived through the Carter years will be just fine....
we know the score
-007
The score:
Them - 911
Us - ZIRP
LOL
Talking about collapse is just fear porn.
The banks will get bailed out, our grandkids will pay for it, and the baby boomers will sit on the beaches of the world and drink pina coladas until the cows come home.
You know why? Because the dollar is the world reserve currency and everyone of the suckers on this planet want it to survive and thrive. So thrive it will.
Besides, there are too many safety nets in place for it. It will not be allowed to collapse since it supports 1 quadrillion in derivatives.
You forgot the Hatred Factor. A lot of other countries don't want the dollar to survive because they hate us, to a very great extent because we've been irresponsible in the extreme with the dollar.
{{{If your monthly expenses are about $3,000/month, you need 45 ounces of Gold to cover two years of high inflation.}}}
My monthly expenses are close to $7,000 a month.. I am single -- no wife, child, parent or even pet to support living outside of the Boston area.. Tell me where in the USA a single person under the age of 40 can live on $3,000 a month
Cocaine costs a lot in Boston eh? But I hear you, when I lived in Carmel NY (08/2000 to 12/2001) and commuted into the city for a job on Fifth Ave. not only did it take a minimum of two hours each way each day but cost over $700 per month. Just to get to and from work. I had accepted a job there for $45,000 while I was living in Tallahassee not realizing that $45k a year in NYC pretty much made me equal to what burger flippers make everywhere else as far as living standards go. It was so bad I accepted an invitation from a friend to live at his place rent free though I might as well have been living in a monastery. When you are young and still fine tuning the navigation systems of your life you might have the drive and energy or delusions of progress, enough to get through that, but after about 45 or 50 you can't live like a new college grad anymore. Just like the shocking realization at some point in your life that you are mortal after all there comes a point when you know that economically you are toast and were used, you can never achieve the escape velocity from poverty or near poverty to make it into the middle class no matter how smart and ethical even good looking you might be. I would have had a better life financially had I exploited my youthful appearance and big dick when I still had them and they functioned properly.
In short I should have "married" well.
When young people ask me how to get ahead in life my answer has always been get a college education and read a lot. Never take out a student loan under any circumstances. If you can't finance college without one then either join the military for their help or do not go to college.
I think I will change that advice to just find a rich person and hook up with them no matter how repulsive and flawed they are.