By Kris Sayce, editor, Casey Daily Dispatch
It’s the worst thing a government can do.
Forget COVID lockdowns.
Forget wars (at least you can argue some wars may be “just”).
There is something far worse…
It is deliberate. And governments do it in the most devious way.
They do it with the intent of transferring wealth away from the middle classes, and toward the government and its vested interests.
The worst act of government and its agents is… inflation.
Welcome to the Dispatch. If you’ve read our content before, welcome back.
We have two main goals:
To introduce you to the most important investing themes of the day, and
To show you how to profit from them.
We do this by showcasing ideas from our in-house investing experts: Nick Giambruno, Dave Forest, and the founder of our business, Doug Casey.
In yesterday’s Dispatch, we showcased the latest research from Nick Giambruno. We showed how Nick’s analysis says we should prepare for a “financial hurricane.” (Full details here.)
Today, we look at the other factor troubling Nick: the growing threat of inflation, and the danger it poses to your wealth…
The Government’s “Pattern of Corruption”
First up, what exactly is inflation?
Well, inflation is the result of an increase in the money supply by the central bank – in this case, the Federal Reserve.
The government does this by using “fiat currency.” If you’re not familiar with the term, it refers to the current monetary system where a central bank issues paper or electronic money without any kind of security backing it.
It’s the opposite to something like a “gold standard.” That’s where every dollar in circulation has its equivalent value in gold held in reserve by a bank.
This fiat currency system lets a central bank create money from thin air, which it then feeds into the economy.
So what’s wrong with that? Why do our experts write so strongly against it?
After all, for the past several years, governments and central bankers have said we don’t have enough inflation.
They’ve argued that 2% inflation is just about the right level… and maybe a little more. You know, just to make up for the recent period of sub-2% inflation.
The reason that inflation is so bad is that it silently and gradually eats away at the value of your personal wealth.
It devalues your wages and the income from your investments. It reduces your disposable income as monetary inflation leads to increased prices.
It makes you wonder why you can never seem to get ahead, even after getting a pay raise… even though mortgage interest rates are near record lows… and your stock portfolio has grown.
Perhaps you’ve felt that way. Perhaps you know family or friends who feel that way.
But governments want inflation for two reasons…
First, to finance their spending (inflation is less obvious to the population than higher taxes).
And second, they do so to exert control over the citizens (the more programs the government has, the more ingrained it becomes in your life – you can’t avoid it).
This is part of what Nick says is a six-part “pattern of corruption.”
It works like this:
In a fiat currency system, the government will invariably print an ever-increasing amount of currency.
This makes prices and the cost of living rise faster than wages.
The average person feels the pain but doesn’t understand what’s happening.
More people support politicians who promise “freebies.”
In order to pay for the “freebies,” the government prints more money.
This creates even more inflation, and the cycle repeats.
More Than Just an Academic Exercise
And don’t for a moment think this is just an academic exercise… that it’s only something economists and professors get excited about.
The effects of monetary inflation filter directly through to you. As The Washington Post reported yesterday:
Consumers are paying more for a growing range of household staples in ways that don’t show up on receipts – thinner rolls, lighter bags, smaller cans – as companies look to offset rising labor and materials costs without scaring off customers.
It’s a form of retail camouflage known as “shrinkflation,” and economists and consumer advocates who track packaging expect it to become more pronounced as inflation ratchets up, taking hold of such everyday items such as paper towels, potato chips and diapers.
That’s what makes it so dangerous for the consumer. But it’s bad news for companies, too.
There has been a clear increase in the number of companies warning that inflation is affecting business.
For them, the biggest problem is increased production costs.
Even Warren Buffett, not normally one to speak out against the establishment, has sounded the alarm on inflation. As CNBC reported last month:
“We are seeing very substantial inflation,” the Berkshire chairman and CEO said at the conglomerate’s annual shareholder meeting Saturday. “It’s very interesting. We are raising prices. People are raising prices to us and it’s being accepted.”
For now, businesses and consumers are paying the increased costs. But for how long? And if people begin cutting back on spending because of increased costs, where does that leave those businesses?
And what will that mean for stock prices? If companies absorb increased costs, it leaves them with two choices: they accept lower profit margins or they cut their own costs… or both.
But companies can only cut so much.
To us it means the inevitable. Inflation is part of the big picture that Nick paints with his “financial hurricane” analysis. The more that governments manipulate money and the economy, the greater the chance of another financial crisis.
U.S. Federal Government debt is now over $28 trillion. It was only around $5 trillion 20 years ago. Anyone who thinks the spending, inflation, rising debt, and financial crises are over, is kidding themselves.
There is more to come, and a “financial hurricane” is just about the best way to describe it.
Editor, Casey Daily Dispatch
P.S. What’s your take on government, inflation, fiat money, and the level of the federal debt? Let us know by writing to [email protected]. Just type “financial hurricane” in the subject line.