Stagflation is Here

29 Apr

Stagflation is Here

Just did a quick word search to see how many times we have warned you over the past year about the stagflation headed our way.

The answer is many, many times.

Now the numbers are in and it’s official.  Stagflation is here.  

Let us re-print some of our warnings about stagflation.  We’ll get to the latest numbers.

Since stagflation is a combination of a weak or no growth economy and high inflation, in our post Reminds Us of the ’70s! we described conditions this way:

Weak growth makes it increasingly impossible for debtors – individuals and corporate – to service their massive debts.  That is because sales slow down, margins are squeezed, businesses are forced to cut prices, pay raises do not materialize, and jobs disappear.

At the same time inflation means the purchasing power of the currency falls, interest rates rise in compensation, and saving money becomes pointless.  And it blows up the bond market.  

There is a haven of safety and profit in an era of stagflation:  Gold.

In our piece STAG + FLATION: The worst of both worlds! we cited famed NYU economist Nouriel Roubini who said “a slow-motion train wreck looks unavoidable”:  

He worries that debt ratios are much higher today than they were in the 70s.  Debt ratios are three times higher than in the stagflation decade.  “The stagflation of the 1970s will soon meet the debt crises of the post-2008 period,” says Roubini.  “The question is not if but when.”

Thus, the conditions that propelled gold and silver to new highs in the stagflation decade are assembling again.  We recommend our friends and client take steps now to protect themselves in the time-tested way, with a solid portfolio of gold and silver.

In The New Stagflation Decade, we wrote that the Keynesian economic priesthood that has dominated US economic policy for almost a century, insisted that high inflation and a stagnating economy couldn’t co-exist:

If the economy was stagnating, they believed, then the central bank would just print gobs of new money and – presto! – full employment.

So that’s what they did in the 1970s.  They printed money.  Boy, howdy, did they print money!  Prices took off.  And the economy stood still.  And began to shrink.

Despite the fact that inflation reached 12.3 percent in 1974, economic growth was negative that year and the next, while unemployment rose to 8.2 percent. 

“That’s impossible!” screamed the Keynesian big government economist.  “Print more money!”

And they did.

By 1979, the inflation rate was 13.3 percent.  

And a world-changing gold and silver market was the result.

So here are the latest numbers. You already know that the Consumer Price Index for the 12 months through March was up 8.5 percent, the highest in 40 years.  We know the CPI in some markets like Phoenix came in over 10 percent and believe the real national inflation numbers may be closer to 16 or 17 percent.

And growth?  It is non-existent.  The usual establishment suspects told us that the economy would grow 1.1 percent in the Jan – March quarter.  But the economy is shrinking, not growing.  It contracted 1.4 percent in the first quarter.

The next question is this:  Will the Fed really raise interest rates when the economy is contracting?  For those who know what happened in the 1920s, it doesn’t sound like a good choice.  

But because the geniuses in Washington spent $30 trillion we don’t have, and printed trillions of made-up phony dollars in the last couple of years, there are no good choices left.  Now we have arrived at the reckoning for the madness of our times.  

Buy gold.