NIA Answers U.S. Inflation and Economic Questions
FORT LEE, N.J., March 25 /PRNewswire/ -- The National Inflation Association - http://inflation.us - today announced the 10 most important new NIAnswers recently added to its database.
1) Is there any kind of signal to look out for that would indicate that hyperinflation is close, or will it just all of a sudden happen one day and catch everyone off guard?
We see many signals that hyperinflation is almost here already. The price of gold has been rising to record nominal highs. Stocks have been rising despite rapidly deteriorating fundamentals. College tuition and health care costs are surging to astronomical levels. Social security is now paying out more money than it takes in. Our budget deficits are reaching record highs. Our national debt growth is rapidly accelerating. China is diversifying out of their U.S. treasury holdings.
Hyperinflation can literally occur at any time now. It will catch most people off guard, but not NIA members because we see all of the signals that the mainstream media is ignoring. It is important for us to prepare as if hyperinflation will be here tomorrow.
2) What do you think about the recent appreciation in the U.S. dollar?
The U.S. dollar index has only been rising because it is heavily weighted against the Euro. With the debt crisis in Greece, many investors have been shorting the Euro, which has caused the U.S. dollar index to rise. However, the price of gold has held strong around $1,100 per ounce, which shows the U.S. dollar in reality hasn't been appreciating in value at all.
3) What has happened in other countries when an 'inflationary holocaust' wreaks havoc on pricing? Will the (broke) government actually rescind the outrageous "gains" taxation and just print more money?
During historical instances of hyperinflation, the inflation took place so fast that governments funded over 99% of their spending with money printing and less than 1% through taxation.
Let's say for example you had a car that you purchased new for $20,000 and you decided to scrap it for $50,000 worth of metal. The government might force you to pay taxes on the $30,000 fantasy profit. However, if you merely delayed paying that income tax for a few months, it's possible inflation will be taking place so quickly that you will now be able to sell an old beat up pair of shoes for $50,000. Therefore, paying the tax, assuming there still was one, wouldn't be a problem at all.
4) Can you please explain how NIA estimates the real rate of inflation to be approximately 3-4% higher than what is indicated by the CPI index?
The government purposely understates inflation through the CPI index because social security and other programs adjust to the CPI index, and they want to keep payment increases for these programs as low as possible.
The CPI used to account for inflation a lot more accurately, but many revisions have been made over the years. Through geometric weighting, the CPI index today gives a lower weighting to goods that are rising in price and a higher weighting to goods that are dropping in price. They justify this by saying that if the price of steak rises, Americans are more likely to eat something that is dropping in price like hamburgers.
The government also now uses hedonics to understate inflation. Hedonics account for the increased pleasure of using goods. For example, if an oven increased 25% in price but is now more "energy efficient" the government can say the price didn't actually gain at all. Also, if the government mandates that new safety features get added to cars and car prices rise by 10%, they can say because the cars are now safer, the price didn't rise at all.
Between the geometric weighting and hedonics changes, the CPI index understates inflation by approximately 7% compared to the way inflation used to be calculated. However, some respected economists believe the old way of calculating inflation slightly overstated inflation so NIA is being conservative with our estimates that real inflation is about 3-4% higher than what's reported by the CPI index.
5) China needs the U.S. to purchase their products. Do you really think their economy will grow without selling their products overseas?
The only reason the U.S. can afford to purchase cheap products from China is because the U.S. is exporting inflation to China and China is allowing the U.S. to run huge trade deficits. When China stops artificially propping up the U.S. dollar and allows their currency to strengthen, the Chinese will be able to afford to consume their own goods that they produce. They don't need Americans to consume goods that they are perfectly capable of consuming themselves.
6) Do the other countries have to buy our debt or face the wrath of our military?
We don't believe this is true, because if other countries stop buying our debt we won't be able to afford our military. Our military is bankrupting our country and one of the main reasons we have such large deficits that will eventually lead to massive price inflation. The world does not need our military to police it. Countries like China can afford their own militaries a lot more cost effectively.
7) With the current size of our national debt, is deflation even possible?
The U.S. is the most indebted nation in the history of the world with a national debt of $12.7 trillion, Fannie/Freddie debts of $6.3 trillion and unfunded liabilities of more than $60 trillion. Our real debts are now about 600% of GDP and it will be impossible to pay them back. The U.S. will either default on its debt or print its way out of it, creating massive inflation.
Because we believe the U.S. is unlikely to admit it can't pay back its debts, inflation is clearly the solution. We don't see any risk of deflation long-term.
The mainstream media talks about deflation because they see through a rear view mirror. They see some prices having fallen after the financial crisis of 2008, but they don't realize there were temporary forces driving prices down due to artificial forced liquidations and excess inventories that needed to be worked off.
When the artificial pressures holding prices down are gone, all that will be left is the trillions of dollars of newly printed money in circulation that will chase goods and services all at once.
8) What good would it be to elect a few select people to the Senate like Rand Paul and Peter Schiff? Shouldn't we focus our energy and efforts on changing the entire system?
We believe the system is corrupt because of the Federal Reserve and its ability to manipulate interest rates and create phantom money out of thin air. Before the creation of the Federal Reserve, the value of our currency was stable and we did not have the booms and busts that we do today.
In our opinion, the system our founding fathers created would work if we only followed the Constitution. The creation of the Federal Reserve and all of the actions of the Federal Reserve are unconstitutional.
We need to do more than elect a few select people to Washington. We need to replace everybody in Washington with people who will work to protect the Constitution. If everybody in Washington was like Ron Paul, our country would not be on the verge of a hyperinflationary crisis like it is today.
It is because of the mainstream media and how they brainwash Americans, that Congress is full of people who are clueless about the economy and the root cause of all our problems. With the Internet, the mainstream media is slowly losing its power and our hope is that an increasing percentage of Americans will see our documentaries and learn to think for themselves instead of electing politicians based on what the mainstream media tells them.
9) If no governments currently back their currency with gold then why do they still hoard it?
Even though there are no currencies that are still convertible into gold, gold is real money and it is important for central banks to hold gold in order to protect the value of their foreign exchange reserves.
The average country has about 10% of their foreign exchange reserves in gold. However, China currently only has 1.5% of their foreign exchange reserves in gold and they have most of their reserves in U.S. dollars. Due to the massive monetary inflation taking place in the U.S., China's reserves are at risk and it is important for them to diversify out of their U.S. dollars and accumulate more gold.
Although the U.S. has the largest gold reserves at 8,133.5 tonnes, which makes up 68.7% of its foreign exchange reserves, the value of the U.S.'s gold and other reserves is nothing compared to its $12.7 trillion national debt plus Fannie/Freddie debt and unfunded liabilities.
10) Don't you think the short U.S. dollar/long gold trade is too crowded for it to work?
In December when everybody was bearish on the U.S. dollar, we predicted a short-term rally in the U.S. dollar index in early 2010 and we were right. Today, everybody is bullish on the U.S. dollar and bearish on the Euro. Soon traders will be forced to reverse their trades and the U.S. dollar will plummet. With interest rates at 0%, it will be impossible for gold prices to crash. There is simply way too much excess liquidity in the system. The average American is still more likely to be selling their gold than buying it. There are still more Americans looking to invest into Real Estate foreclosures, than precious metals. We have a dollar bubble, not a gold bubble.
To receive NIA's latest updates about inflation and the economy, sign-up for the free NIA newsletter at: http://inflation.us
About us:
The National Inflation Association is an organization that is dedicated to preparing Americans for hyperinflation. The NIA offers free membership at http://www.inflation.us and provides its members with articles about the economy and inflation, news stories, important charts not shown by the mainstream media; YouTube videos featuring Jim Rogers, Marc Faber, Ron Paul, Peter Schiff, and others; and profiles of gold, silver, and agriculture companies that we believe could prosper in an inflationary environment.
Contact: Gerard Adams, 1-888-99-NIA US (1888-996-4287), [email protected]
SOURCE National Inflation Association
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