If you listen to mainstream economists, they will have you convinced prices in the U.S. economy aren’t rising fast enough. Some say we are headed towards a period of deflation. But the reality of the matter is that inflation in this economy is running rampant.
According to the Bureau of Labor Statistics, what you could buy for $1.00 in 2008 will cost you $1.08 in 2013. In other words, according to the “official” statistics, over the past five years, prices in the U.S. economy increased by only eight percent, or roughly 1.6% each year. (Source: Bureau of Labor Statistics web site, last accessed November 28, 2014.)
But ask anybody who goes out and buys food and other household items on a regular basis and they will tell you that aside from gas (because of lower oil prices), prices, in general, are rising.
In the Spirit of Thanksgiving, Turkey Prices Keep Rising?
Considering we just celebrated Thanksgiving in America, all we need to do is look at the price of turkey to see how fast inflation has risen.
According to data from the U.S. Department of Agriculture, in 2008, the average price per pound of turkey was $0.56. In 2013, it was $0.67. This represents an increase of about 20%.
A recent survey of our intelligent Profit Confidential readers pegs inflation at around five percent per annum.
Worst Inflation Is Yet to Come
One of the indicators I follow to see where inflation will go is the ever-important velocity of money. This is simply how many times each dollar is used in an economy. Historically, as a dollar is used over and over again, it increases the chances of inflation.
Until the first quarter of this year, the velocity of money was in a free-fall in the U.S. economy. In the first quarter of 2014, it reached the lowest level since the 1960s—1.381. This means that one dollar was used only 1.381 times. But by the second quarter, it had increased to 1.387, and it remained there in the third quarter. (Source: Federal Reserve Bank of St. Louis web site, last accessed November 28, 2014.) In early 1980, when we had very heavy inflation, the velocity of money in the U.S. was 3.5.
I have been saying this for some time now: the “official” inflation figures do not give us a true indication of inflation. House prices in the U.S. economy have been rising since the Great Recession. The stock market has been rising. Only oil has been declining.
Dear reader, investors are too worried about deflation when they should be worried about inflation. How can you create $4.0 trillion in new money out of thin air and not have inflation?
Those investors who are selling their gold because they feel gold is no longer worth holding in this “deflationary environment” may end up regretting their decision.