Monday, November 25, 2013

Inflation Is Raging – If You Know Where To Look

John Rubino writes:
Clearly, inflation is raging. But because so much of society’s wealth is flowing to the top 1% — who after all can only drive one car at a time and tend to eat no more than the rest of us – inflation isn’t showing up in food, suburban houses or other mass-market products. Instead, trillions of disposable dollars are pouring into real assets that are then hoarded in mansions and high-end storage facilities. This is a truly startling asset grab when you think about it.

The one unique thing about this episode is that past migrations of capital from financial to tangible assets have included precious metals, which tend to be in demand when paper currencies are being mismanaged. That gold and silver aren’t participating is the strongest proof yet that they’re being manipulated to hide the impact of rising debt and excessive currency creation. After all, if you’re going to spend $100 million on art, your financial adviser will almost certainly tell you to diversify into farmland, oil wells and gold bars.

That this hasn’t happened doesn’t mean it won’t. Picture a chart tracking the tangible asset classes of the super-rich: art, jewelry, high-end London and Manhattan apartments, beachfront property, gold bullion, etc., the things that are exist in limited supply and continue to exist no matter what the S&P 500 or 10-year Treasuries are doing. Virtually all the lines on that chart would would be looking parabolic right about now – except precious metals. A billionaire, trying to figure out where to move his next hundred mil would look at this chart and see one outlier, one thing that hasn’t yet gone through the roof, and make the obvious choice. That day is coming.

But looked at another way – in terms of the amount of paper currency being used to buy them – you could say that gold and silver are by far the most popular tangible assets in the world. China, India, and Russia between them have snapped up about 4,000 tons of gold this year, worth about $153 billion at the current price. That’s a lot more than was spent on art. It’s just that these purchases, massive though they are, aren’t moving the price.

But they are moving something: the gold reserves of the western central banks that are sending their gold eastward. They’re moving those down, at an unsustainable rate. So Western central banks face a tough choice: keep sending their gold to Asia until it’s gone, or let the super-rich bid it into the stratosphere in line with art and diamonds. Sooner or later, they’ll have to choose door number two.


  1. I'm in the 1%, so please tell me how to make more money flow to me, especially in the form of rent seeking as is implied? I really want to know how to participate in something that is implied that I am participating in. And then when you tell me, I'll be sure to tell all my other 1%er friends so they too can get in on all this wealth that is suppose to be flowing our way. I go to work every day. I own a business and I am charging the same prices I was 7 years ago. I also make about the same amount of money per year (except 2010 which was very, very bad). I just want to know where I am screwing up.

    1. You bring up an interesting point, the threshold isn't as high as some people think to be a "1%"er.

      Thing is though, in tough times they have more capital to withstand cash flow hits and better access to credit to take advantage of "deals" that pop up as a result of a poor economy, desperate people, etc.

      That probably partially explains this statement in the article:

      "In New York City, where the Occupy Wall Street movement began, the richest 1 percent of households saw their share of all income in the city rise from 12 percent in 1980 to 44 percent in 2007, the last year for which data are available, according to a study by the Fiscal Policy Institute."

      Of course, the article later goes on to explain different ways to calculate what "1%" is, but this quote kind of drives home the point:

      "The Washington, D.C.-based think tank found that from 2007 to 2009, average annualized household wealth declined by 16 percent for the richest fifth of Americans and 25 percent for the rest of the country.

      But even with the across-the-board income drops, EPI researchers found that in 2009 the wealthiest 1 percent of U.S. households had net worth that was 225 times greater than the typical median household's net worth.

      That disparity, according to EPI, is the highest ratio on record."

      It kind of reminds me of Marc Faber saying a few years ago(paraphrasing), that under inflation most people lose money, just that some are loosing it faster than others, the more wealthy have more resources and probably knowledge to keep the loss lower or at times even profit.

    2. Perhaps the more accurate figure is 0.1%, or 0.001%. Doesn't really trip off the tongue though.

    3. I was being rhetorical. The whole 1%, .01% or whatever is just a convenient means by Statist to simplistically create a villain usually to justify immoral actions such as theft of property by the State. Those that do profit from connections to the state, who have the ability to influence policy are no doubt mostly wealthy individuals, but not always (public sector unions), but that does not mean that anyone that is wealthy or earns a good income (regardless of where it is in the 1% spectrum) is doing so through some elaborate rent seeking wealth transferring scheme as is so often implied.

  2. You obviously are NOT in bed with the government. That's where you went wrong