Is Inflation Really a Problem? The Market Report

The Fed insists inflation is under control. Is it really?

According to the Financial Times, the cost of the most important meal of the day rose 24% year to date, with coffee being the biggest gainer going up over 70%. In this edition of the Market Report, Will Hart and Jake Kennedy tell us why we should be worried about inflation, even though the Fed says it’s all fine and dandy. Listen to the complete report below:

Mark Alyn: This is Market Report from Birch Gold Group. Hi everyone, I’m Mark Alyn along with Will Hart and Jake Kennedy from the Birch Gold Group. Today we gonna take a look at the latest indication of inflation. Gentleman, welcome to the Market Report.

Will Hart: Thanks Mark, thank you for having us.

Mark Alyn: Is inflation in check? I mean, are we OK? According to the Fed, inflation is fine.

Will Hart: No, absolutely not. The price of everything is going up astronomically. We see food. Food has been going up – it’s been a big topic I’ve been reading on the Internet and every news corner is talking about [it]. They don’t report on food. Yet, I know when I go to the grocery store, what use to buy a $100 groceries is nowhere near what it used to buy.

Mark Alyn: Yeah, I noticed that too. How about your take on that Jake?

Jake Kennedy: Yeah definitely things are getting more expensive and everybody I talk to agrees with me and I don’t think they quite understand how, why, or where. They just know that things are getting more expensive. And I think to your point, Will, they just don’t report on certain things anymore, and if you look historically back as to how they used to measure inflation, it’s really quite interesting because if you look back when inflation was running at 18-19 percent back in the 80’s, and if you look how they actually measured the metrics for inflation, and if you took those same standards, and you have the same measures in place today, you have a inflation at about 8 percent. Nobody wants to see inflation, because you gonna pay 10 percent more social security and that’s trillions and trillions of dollars you don’t have. So they have to crunch those numbers down as best as they can. So what they’ve done over the years is conveniently rule out things that actually rise when there’s food crisis or fuel crisis or volatile elements like food and fuel among other things. So those figures don’t play in the overall inflation standards.

Mark Alyn: I have a chart here. I’d like to read parts of it. Ok guys? This is a typical breakfast year-to-date in the beginning of 2014. I’m gonna give you the amount that some breakfast elements, just breakfast elements, have increased:

Cocoa, I’m a hot chocolate drinker – 8%

Coffee – 72%, I’m off of coffee

Butter – 18%

Wheat – 12%

Milk – 21 %

This is just from the beginning of the year. And goes on:

Orange Juice – 12%

Sugar – 6 %

Pork Belly, which is bacon – 42%

It’s an overall increase of 24 percent. In other words, my breakfast is costing me 24 percent more. I’m getting less breakfast for my dollar than I used to.

Will Hart: Yeah, it does surprised me. I’m actually surprised that it’s not even greater than that. You know one of the things you mentioned – inflation, but there’s more to it than just inflation. You have to couple in devaluation. And that’s the part that again government does not report on. So we know that they are not reporting on food and they are not also reporting on the devaluation of the dollar. And like Jake said, they don’t wanna pay more money. They don’t wanna have to do any subsidies. So, this is just a way for Americans, for anybody who’s got a dollar bill living in this country is basically saying, “Great, my dollar doesn’t go as far as it used to. So what does it mean – get a second job?” At what point does the government kinda own up and say, “Alright, look we are doing this. We are basically stealing from everybody and you know we got a broken economy.”

Jake Kennedy: They never gonna do that because this is a very clever move to tax you. Nobody wants 20 percent GST or state tax, or, like in England where I’m originally from, there’s now up to 22 percent tax on pretty much everything you buy, and in Australia too. And some people are proposing we bring in a 10 or 15 percent federal tax on everything you buy in this country [the United States].

Mark Alyn: Plus state tax?

Jake Kennedy: Yes. Actually I don’t know that but I would understand why they would take away from the states, yes from everything. That probably is gonna be the most unpopular move across the board because everybody gets taxed. So what I believe they are doing instead, which is a very smart thing to do because we gonna get taxed anyway. Maybe it’s a 24 percent tax on breakfast, but you don’t tax 24 percent on breakfast because you lose votes, so what you do is just keep creating money. Let’s say you need a trillion dollars to run the government which we don’t have; let’s not tax people 15 percent on everything to get that trillion dollars; let’s just print a trillion dollars and that’s tax everyone by inflation. So, it’s really the most sinuous tax of all because everybody gets taxed that amount. So, that’s why we really gotta look at and understand this at deeper level to know that this government is taking your dollars and your buying power away from you every single day by the creation of money.

Mark Alyn: The devaluation of the dollar is really what we are talking about, because the dollar is declining in value and the government is not as you said owning up to it. And this across the aisle.

Will Hart: Absolutely, they’ve painted themselves into a corner and the only answer they have, as Jake explained, is just keep printing – print, print, print. And we’re all taking it, not even realizing we’re taking it. It’s just happening. The value of our money, whether we’ve got it buried 6 feed under the ground, the value is being eroded from underneath. And again what we do here is we sell precious metals, and once you convert that buried treasure into gold, you stop the devaluation process immediately.

Mark Alyn: Obviously, you are here to sell gold and other precious metals, but at the same time do you guys consider yourselves helping people to maintain their wealth? I mean, you are helping people in selling what you’re selling.

Will Hart: Absolutely, the moment that somebody converts their paper to gold, they no longer are losing value of their paper because it’s in physical metals. The two run opposite. I always try to explain to people gold doesn’t necessarily have to go up. It’s [the] dollar going down. So, when you see that breakfast costing more when you go to the grocery store and you’re paying more. The money that you’ve converted to gold, whether gold is going up or not – it doesn’t’ matter because the dollar is going down. I’ve said this in a previous show with you, gold is like a fishing bobber – it floats on top of water whether the water is a mile deep or an inch deep. It sits there and floats and meaning that is the value of cost of goods and services. Gold will maintain it, right there along with it.

Mark Alyn: Jake, you said something interesting before we started recording our show, and that was that for years America has had, compared to the rest of the world, cheap food and also cheap gas. Can you comment on that?

Jake Kennedy: Sure. I don’t have the exact stats but I know that other countries around the world pay a lot more for gas. In England, it’s probably twice or three times the price. I know food is up there too and pretty much every other country in the world pays a lot more for food. And we [people living in America] pay a lot less. And I think what we gonna see here, as the dollar becomes worth less and less or confidence is lost in the dollar, we gonna see everything go up in price. Food is going that way now and other things will follow as they are. I lot of sectors have seen price rises, from health care to various insurances and so on and so forth rising in price. We gonna have a shock here in this country at some point because in a year or two years people are gonna wake up and say, “Gees, what just happened?” because “Everything is now double the price and I didn’t take steps to make sure that my portfolio and my money rose with inflation or was protected against inflation.” And that’s the thing about inflation – you don’t notice it. Actually I noticed it in Costco the other day, and eggs jumped in price. I remember three months ago these were a lot less. But otherwise you don’t really notice something going up five or ten cents or something going up thirty cents on a two dollar thing. But it’s fifteen percent [increase]. So, you don’t really notice it but one day suddenly it’s not two dollars, its four dollars. And you go, “Did that just double in price over the last couple of years?” But what they haven’t maintained or done is make sure that their time in dollars or their money in the bank or investments are doing the same thing, which is keeping up with inflation or the cost of living. And that’s really what gold is about – it’s there to protect your buying power. Protect what you have so it doesn’t lose value over time. And in theory if we do see a giant step or a leap up in inflation because of all the money printing and loss of faith in the dollar, then gold will rise dramatically as it does in other countries and your assets in gold will rise as well. But if you stay where you are, you will lose value in all those assets.

Mark Alyn: And if you stay with dollars?

Jake Kennedy: Dollars or bond earning two percent or anything that really isn’t gonna keep up with inflation because they just gonna stay in the bank or wherever they are earning two percent, and in ten fifteen percent inflation environment that’s not good for you.

Mark Alyn: With breakfast rising 24 percent, I mean that’s an overall average, has gold stabilized over the last year?

Will Hart: Gold has been hovering in this 1200-1300 [dollar] range. Just hovering there, just exactly what we would expect. We already know that fact that gold is up 9 percent already this year, when the Dow was up 0.1 percent. Gold maintains that value as I have mentioned about the cost of goods and services where as you can see breakfast is up 24 percent.

Mark Alyn: Gas, let’s talk about gas. It’s hovering here in Southern California where we’re based around $4-4.5. I did see it at $5 last week, which is amazing. It’s outrageous. Compared to other parts of the world, our gas is still cheap and we’re spoiled, Americans are spoiled. But as we see that price at the pump climb and we gonna be paying more for that and that comes back to the devaluation of the dollar…

Jake Kennedy: This is the thing. You don’t even remember five years ago when gas was $1.86 [per gallon]. Ok? People don’t remember that. It’s just sort of drifted through the last five years and OK now it’s $4 a gallon here in Southern California. But when Obama came in office and Bush left, it was $1.80 to $1.90. So that’s what I’m talking about. Five years ago you could buy an ounce of silver for $9 or $10. Now it’s $20. So, that silver is doubled in value and if you put $100 in silver back then is worth $200 today. But you go to buy a gallon of gas today with that same $100, it’s gonna buy you half as much because gas is double in price. Short term ups and downs in gold – that’s expected, but over the longer term, history shows that gold maintains its buying power; gold maintains its value. So, in five years we can see gas redouble again or triple even, and I’m pretty sure that gold is gonna maintain its value alongside that to maintain your buying power.

Mark Alyn: Regarding gas, we have a family meeting and we talk about where to buy cheap gas. And I keep changing that word “cheap” to “less expensive.”

Jake Kennedy: It’s all relevant.

Mark Alyn: It’s all relevant, exactly. In buying gold, in buying silver to maintain the value of my portfolio, is it easy to do and is it really a hedge against inflation?

Will Hart: It is everything you just said: it’s easy to purchase; it is a hedge against devaluating dollar; it’s a hedge against inflation. It’s a way to simply preserve you buying power into the future.

Jake Kennedy: And to your point, Will, yes it is a hedge against inflation, but gold is also a hedge against many other things. If we look back to the financial crisis in 2008 – back then it was a fantastic hedge against the stock market and then the crash of the stock market. Back then stocks lost 50 percent of their value over two years, or less, and gold gained, doubled in value. So, it [gold] really offset any loses in the stock market back then. And a lot of people today are buying gold right now to hedge themselves against dollar devaluation, dollar crises, and many other things that can come and worsen the economy or terrible events that can happen with the global economy, for example war. People seek safe-haven assets in that times and that’s exactly what gold does for portfolios and will do for people. It acts as safe haven or safe harbor for their money.

Mark Alyn: Gentleman, thank you very much for joining us here on the Market Report. We’ve been talking with Will Hart and Jake Kennedy from Birch Gold Group. If you have a question for us, email us at info@www.birchgold.com. You can also visit our website at www.birchgold.com or call one of our Gold Specialists at (800) 355-2116. For the Market Report and for Will and Jake and Birch Gold Group, I’m Mark Alyn. Thanks for listening.

Image source Zero Hedge

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Featured, gold, inflation, the dollar, the fed