U.S. Economic Ponzi Scheme Could Cause Rampant Inflation In Years Ahead
The rioting and looting currently taking place in Egypt is primarily a result of massive food inflation and shows what all major cities in the U. S. will likely look like come year 2015 due to the Federal Reserve’s zero percent interest rates and quantitative easing to infinity… Words: 1891
So says the National Inflation Association (http://inflation.us) in an article* reformatted and edited […] below by Lorimer Wilson, editor of www.munKNEE.com, for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Also included below are links to additional articles on those countries most at risk of getting crushed as a result of food inflation; the extent of global agricultural commodity inflation since 2003 and one providing a greater understanding of the full picture behind what has led up to the current events in Egypt. The NIA goes on to say:
Food Related Commodity Inflation Is Rampant
Food inflation in Egypt has reached 20% and citizens in that nation already spend about 40% of their monthly expenditures on food [See research Here by Nomura that puts the figure at 48.1% and list 25 countries whose governments could get crushed by food price inflation]. Americans for decades have been blessed with cheap food, spending only 13% of their expenditures on food, but this is about to change… (For more on the subject matter in this article go here to listen to a well received video by NIA.)
Over the past year, agricultural commodities as a whole, have outperformed almost every other type of asset [except] silver. [See here for a graph showing how prices in global agricultural commodity have escalated in the past year.]
Wheat… is now up to a new 30-month high of $8.63 per bushel and has doubled in price since June of last year. Algeria bought quadruple [the expected quantity]… of wheat this past week… [and] Saudi Arabia is also beginning to stockpile their inventories of wheat.
Rice futures have gained 8% during the past few days with Bangladesh plans to double rice purchases this year and Indonesia’s latest rice order was quadruple its normal allotment… Meanwhile, the U.S., which is the world’s third largest exporter of rice, is expected to cut production by 25% in 2011.
Cotton’s recent spike in price reminds us of the 2008 spike in oil. At its current price of $1.80 per pound it may have gotten a bit ahead of itself in the short-term as we could possibly see a dip to below $1.40 per pound first. [Nevertheless,] we believe cotton will ultimately rise above $3 per pound later this decade.
Many people in the mainstream media [have been] claiming that agricultural commodity prices have very little to do with prices of food in the supermarket. CNBC’s Steve Liesman, in particular, claims that “rising commodity prices won’t cause inflation”. Liesman has it backwards… Rising commodity prices are only a symptom of inflation… While gold is the best gauge of inflation and is often the best tool for predicting future money printing, agriculture is where the majority of the monetary inflation ends up going after the Fed’s newly printed money trickles down to the middle-class and poor…
Come year 2015, middle-class Americans will be spending at least 30% to 40% of their income on food, similar to Egyptians today. As NIA warned in its latest documentary ‘End of Liberty’, if you don’t have enough money to accumulate physical gold and silver, it is important to begin establishing your own food storage, and store enough food to feed you and your family for at least six months during hyperinflation. Many store shelves in Egypt are now empty after recent panic buying, with shortages of nearly all major staple items throughout the country. [See here for details of which 11 other countries could well follow the lead of Egypt in overthrowing their current governments and here for a greater understanding of what else lies behind Egypt’s problems.]
Groundwork Being Laid for Hyperinflation
[The UK Telegraph newspaper questions whether the central banks of the developed world might be creating hyperinflation, saying:
The European Central Bank (ECB) has taken a strategic gamble that the current surge in food and commodity prices is not a repeat of the inflation virus of the 1970s and will subside without the need for a monetary squeeze. Jean-Claude Trichet said the jump in eurozone inflation to 2.4pc is a ‘short-term’ effect of rising energy and commodity costs …Yet is a risky move at a time when a powerful new cycle of global growth may be under way and the whole nexus of commodities is on fire. March contracts for Brent crude oil jumped to a two-year high of $103 a barrel on Thursday, while copper broke through $10,000 a tonne and cotton reached the highest price since the US Confederacy halted exports during the Civil War in the 1860s. The UN’s Food and Agriculture Organization (FAO) said its index of global food prices had hit a fresh record in January, while Goldman Sachs’s farm index has risen 90pc since June.]
The U.S. Treasury [for its part] is getting ready to sell $72 billion in new long-term bonds next week, as the U.S. rapidly approaches its $14.29 trillion debt limit. The debt limit is now expected to be reached by April 5th and Treasury Secretary Geithner warned the U.S. will see “catastrophic damage” if it isn’t raised. With the Federal Reserve now surpassing China and Japan as the largest holder of U.S. treasuries, the real “catastrophic damage” ahead will be hyperinflation as a result of the U.S. government doing absolutely nothing to dramatically reduce spending. It is an absolute joke that Obama during his State of the Union address announced $400 billion in spending cuts over the next 10 years, but then the very next day, the Congressional Budget Office increased its 2011 budget deficit projection by $400 billion to $1.48 trillion.
Not raising the debt limit would be a good thing, as it would force Washington to live within its means. Sure, the stock market would collapse and the U.S. economy would enter into its next Great Depression, but at least it would save the U.S. dollar from losing all of its purchasing power. In fact, the standard of living for middle class Americans might actually improve if the government allowed the free market to put our economy into a depression, because goods and services would get cheaper.
The U.S. Economy is a Drug Addict Dependent on Cheap and Easy Money
The U.S. economy has become a drug addict that is dependent on cheap and easy money from the Federal Reserve… The more monetary inflation (heroin) the Federal Reserve creates in order to satisfy the (in the words of Gerald Celente) “money junkies” on Wall Street, the more middle-class and poor Americans become dependent on unemployment checks and food stamps just to survive [and] millions of American students are graduating college with hundreds of thousands of dollars in debt but no jobs.
Further Quantitative Easing May Be Coming
China and Japan recently saw their credit ratings downgraded, while the U.S. credit rating remains at “AAA”. NIA believes it would make far more sense for the world’s largest debtor nation to be downgraded instead of the world’s two largest creditor nations. The Federal Reserve’s second round of quantitative easing has yet to even reach the halfway point and the Fed already holds about $1.11 trillion in U.S. treasuries. By the time QE2 is over at the end of June, the Fed will own $1.6 trillion in U.S. treasuries, about what China and Japan own combined. Shockingly, Kansas City Fed President Thomas Hoenig is already dropping hints about QE3. According to Hoenig, the Fed may consider extending treasury purchases beyond June 30th, 2010, (the scheduled completion date for QE2) if U.S. economic data looks disappointing.
China Protecting Itself From Future Hyperinflation By Investing More in Gold
With the Fed taking over as the largest holder of U.S. treasuries, China is beginning to rapidly move away from the U.S. dollar and into gold. In just the first 10 months of 2010, China imported 209 metric tons of gold compared to 45 metric tons in all of 2009, a stunning five-fold increase. While the western world is downplaying the threat of inflation as much as possible, Asian countries understand that hyperinflation is the most devastating thing that can possibly happen to any economy. The demand for gold in Asia right now is the most intense it has ever been, as they look to tackle rising inflation before it becomes hyperinflation.
The Chinese are so smart that families are now giving each other gold bullion as gifts instead of traditional red envelopes filled with cash. China is now on track to soon surpass India as the world’s largest consumer of gold. The China Securities Regulatory Commission recently gave Beijing-based Lion Fund Management Co. approval to create a fund that will invest into foreign gold ETFs.
U.S. Looking Like a Safe Haven Instead of the Riskiest Place to Invest
U.S. stock mutual funds saw $6.7 billion in net inflows during the past two weeks, the most in any two week period since May of 2009. The rioting, looting, and civil unrest in Egypt is now making the U.S. look like the safe haven of the world, even though it should be considered the riskiest place to invest. From the Dow’s low in August until now, about $38 billion was actually removed from U.S. stock mutual funds, despite the stock market rising 20%. The Dow Jones has been rising from September until now solely due to the Federal Reserve printing around $350 billion out of thin air. When central banks print money, stock markets often act as a relief valve due to there being too much inflation going into the hands of financial institutions.
The U.S. M2 money supply has surged by an annualized rate of 16% over the past two weeks with the M2 multiplier now standing at 4.218… A return to the long-term average M2 multiplier of 10 [would require] a 192% increase in the M2 money supply and that is not even including a possible QE3 and QE4.
The U.S. Economy is a Ponzi Scheme
The U.S. economic ponzi scheme could unravel very quickly in the years ahead, with the velocity of money increasing much faster than anybody expects. As more Americans… become educated to the truth about the U.S. economy and inflation, a complete loss of confidence in the U.S. dollar could occur very suddenly.
It is important for all Americans to prepare as if hyperinflation will be here tomorrow. In Egypt… their citizens are trying to implement a regime change before it is too late. By 2015 in America, [however,] it will already be too late and the civil unrest here has the potential to be many times worse.
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
- Sign up to receive every article posted via Twitter, Facebook, RSS feed or our FREE Weekly Newsletter.