Total Pageviews

Saturday, June 18, 2011

Real Cost of Living and GOLD:

The above chart is courtesy of John Williams' Shadowstats. It shows the government CPI (consumer price index - or cost of living measure - or INFLATION GAUGE) versus a CPI that strips out government metrics that have been added to the CPI index over the last forty years that are intended expressly to depress the index.

Oh come on, why would the government do that?

The government has a large stake in depressing CPI because it is the measure of inflation used A) to Depress GDP figures and B) to depress Retail Sales figures. In other words how much of GDP and retail sales is just rising inflation - these, in turn, are the gauges that Wall street uses to gauge Stock Market Valuations - as well as the figures the government uses to calculate the level of mandatory increases in transfer payments (Medicaire, Social Security etc.).

In other words the government has decided it has a huge stake in promoting the APPEARANCE OF PROSPERITY.

How? There as so many ways to massage statistics. The basic tools are using metrics that "Smooth out" the statistics like "seasonal adjustments," (guessing how much better the numbers would be but for temporary factors) "Hedonic adjustments" (guessing how much better the numbers would be if they could take into account improvements in products that don't show up in the price), simply adding in guesswork that improve the figures (Brith/Death models) and finally simply removing cost of living metrics that continually rise like education and health care - and energy - and food - etc.

Let me ask you a question: Are you alive?

If so you've probably noticed the relentless rise in you own cost of living.

So what does this have to do with gold?

Look at the two chars above and you can see that gold has moved with the the relentless rise in consumer inflation. The one break in the chart occured during the banking crisis of '08.

This begs the question of what will happen if another banking crisis permanently depresses these figures if it morphs into a depression.

The answer is that nobody knows. Chances are good that gold will become depressed with everything else. Though it should retain its relatively strong value.

The question is what happens in world government repsonse to this event.

The odds are very high that governments worldwide will fight the depression by printing as much money as possible. Why? That's all they know how to do. It's all they've ever done over the last century to fight any sort of financial disruption.

This means that at some point during the crisis there will be a tipping point at which there will be a Crisis of Confidence in paper. It will appear to happen quickly and suddenly. though the roots of that crisis are forming right now. The Tea Party, whatever you might think of them are a manifestation of a mass loss of confidence. So are riots in Greece, Spain, Italy, Ireland. Imagine these riots happening here for the same reasons they happen there.

Once it happens the gold price will shoot up. And at that point it will be nearly impossible to buy physical gold.

Buy a little now just in case this fantastic scenario is not so fantastic after all.

No comments:

Post a Comment