Ben Bernanke has been talking about low inflation and the threat of deflation for awhile now. In fact it seems to be the main topic of conversation with him these days. My favorite is in his interview on 60 Minutes last week he claimed that the Federal Reserve is not printing money. This was a lie to the American people right? Technically it wasn’t. The Fed is not printing money; they are digitizing it, which is even easier and more cost effective than printing the money. Digitizing money is the same thing as printing money in the sense that it is creating money out of thin air.
The talk of low inflation helps the Fed support their printing campaign. If inflation was spiraling out of control it would be much more difficult for them to get away with this. Enter in the CPI. The Consumer Price Index is what they use to convey what the official inflation rate is. This is intentionally meant to be misleading. The CPI uses tactics like geometric weighting and hedonics which distorts the CPI in favor of a low rate of inflation. For example, if the price of steak rises the CPI will substitute something that is cheaper like hamburger because they claim that people will eat more hamburgers instead of steak. Or better yet, if gas was 20% of your monthly budget and it the price of it doubles they will lower it to 10% claiming that you will drive less. So you can see how the CPI has been distorted for many years to report low inflation.
Casey Research recently released a chart on commodities prices and how they have changed over the past year. They include the CPI change for the same period of time.
The chart clearly shows that commodities prices on food and gas, which are the things we use most, have been rising dramatically over the last year while the CPI only shows a 1.1% inflation rate. Does it look like the CPI is accurately reporting inflation? I certainly don’t think so. These commodities are items that we use daily. Prices at the grocery store are rising and I think we are going to see this even more dramatically in the future.
Look at gold and silver in this picture which seem to be keeping up with a more realistic rate of inflation. This is one reason why we believe that buying gold coins is an important part of everyone’s portfolio and that now is the time to own them.