Over 4% Last Month!
The definition of inflation: “An increase in the currency supply.” Very simple. Also simple, is “Stott’s Law,” which states that, “The more of anything there is, the less they will be worth,” and conversely, “The less of anything there is, the more they will be worth.” Look at any substance, such as water in the desert, or the Colorado River at its end, with water being scarce, it will be worth more, and perhaps in Americas’ upper west, where it rains many inches a year, water is cheap. Antique furniture and paintings, or reproductions? Repros are cheap, as they can be reproduced easily. Since there is far more silver than gold in existence so far, my law applies. Silver is cheaper than gold. Any entity you may choose, will fulfill the law, INCLUDING DOLLARS.
There are far too many dollars in existence. How many? A year ago, there were 2,322.9 billion dollars extant. Ten years before that, in 2016, there were 1,163.4 billion dollars in existence. Ten years earlier, in 2006 there were 783.5 billion dollars in circulation, and ten years before that, in 1996 there were 448 billion dollars, being used as we all use them, to purchase things we need or want. The more dollars there are, the less they are worth, and will always take more to buy things.
Let’s put the previous two paragraphs together, and now we see that inflation is caused by too many dollars, and the number of dollars have increased each year, for the last 30 years, and 93 years previously, when gold was $20.67 an ounce, and a candy bar was a nickel. An obvious question then, is “Why do they keep printing dollars, and are they backed by anything? The answer is the increase is needed to pay government bills, and welfare. The dollars are backed by “The full faith and credit of the Federal Government.”
What does the Federal Reserve have to do with inflation? All we ever hear is that the Fed is trying to control inflation by increasing the interest rate. The Federal Reserve’s interest rate, is actually the interest rate charged between member banks, and has nothing to do with mortgage rates, other than the bank to bank interest rate, is a convenient measuring device. It would be foolish to loan money at less than the inflation rate, as that would be committing economic suicide. Mortgage and other interest rates, therefore usually follow the Fed’s inter-bank rate. The Fed also takes directions from the U.S. Treasury, who needs dollars to pay federal bills. The Treasury orders and the Fed supplies them.
The Fed, by increasing interest rates, figures that when things gets expensive because of high interest, people will stop buying, thereby decreasing the numbers of dollars in circulation, possibly lowering inflation. Not the number of dollars in existence, but by keeping them out of circulation, it may decrease inflation. The dollars are still there, and if inflation goes down a point, maybe a few will buy, or if mortgages go down a point a few will buy a home. It must not work, because last month, inflation was over 4%. Not for a year, but for ONE MONTH.
Why does the Federal Government have so many bills needing to be paid? Answer: Because politicians of both parties, voted for the basic welfare state we are now in, plus the huge size of government and its employees, need to be satisfied. It’s the law. If politicians voted America out of its welfare situation, not only would they lose their next election, but if enough politicians decided to balance the budget by cutting out the welfare state, there is no question but mass violence would occur, to a degree that the nation could get into other civil war, with those collecting, fighting against those voting against providing money from the public trough. That possible domestic civil war would probably destroy major cities, which is where most welfare recipients live. The answer is, that in order to preserve peace and civility, You might as well print the money, and hope it won’t become worthless, as have all previous un-baked currencies in the known world.
By consulting consumer prices over the last 93 years, (1933 is when FDR took office and began the welfare state, with government beginning its huge leap up), it has worked! As nickel Cokes, automobiles, and every single consumer price have escalated, with real estate, taxes, health care, transportation, and wages following in lock-step, there has been no civil war, only mild protestations as prices have gone up every single year.
The current situation has been caused by “gradualism.’” The welfare state has gradually been voted into law, so slowly, that no one was watching, and after all, “The government is paying for it.” Really? Since the increase in dollars to pay for what politicians have voted for, to satisfy the poor, sick, lazy, inept, down trodden, and any other explicit situation where people are in need; politicians voted to ‘help’ those ‘needy.’ Every other nation in earth’s history, has voted itself into extinction by politician approved wars, and politician voted welfare, in all of its facets. It isn’t just welfare, but literally hundreds of federal government offices, agencies, and bureaucracies, needing to be paid. With dollars, of course.
As I am writing this on Friday, the Wall Street Journal just arrived and in bold headlines on the front page is, ”HUNDREDS OF BILLIONS IN LOANS, FAILS TO DENT GLOBAL POVERTY.” It’s a very long article, but rather than just printing money, “Microfinancing banks,” endorsed by just about every liberal politician, to ‘eliminate poverty,’ have failed to make a dent into poverty, but made millions fail to make payments on silly loans, and they’re worse off now than before. Same as printing money, but handing it out in loans everyone knows will never be repaid, and ruining their recipients’ credit ratings. Politicians and foolish banks only made poverty worse, and as the old saying goes, “The poor will always be with us.”
Go back into history as far as you please, and even before there was paper money, and the same thing happened. In ancient Rome, which had silver coinage, and as the politicians voted more and more welfare and government grew, each silver coin was ‘clipped’ to save valuable silver, but the clipped coins were required to buy the same things at the same prices. After clipping became so bad, government simply made coins out of diluted silver, and finally out of base metals, as the U.S. did in 1964. A U.S. silver quarter, is now worth $11.75. In 1964, it was worth a quarter! See why smart people save in silver and gold?
In our Civil War, the North printed its ‘greenbacks’ to pay its bills, and they became worthless. The South printed their confederate money to pay their bills, and they also became worthless. We all know what happened to the German reichsmark after WW I, when it became worthless. I bought my first new diesel Mercedes in 1962 for $3,000 and diesel fuel was 35 cents a gallon. Now it’s over $5.00 and I don’t think Mercedes makes any more diesels. Wouldn’t truckers love 35 cent a gallon diesel?
Gradualism, has kept us afloat for almost a hundred years. Prices have gone up a smidgen at a time, and we got used to it and only mildly complained. It wouldn’t have done any good anyway, as inflation isn’t our fault. If we printed our own dollars, we’d go to jail. What choice do we have? Stop buying food, paying for electricity, gas, or taxes which are imbedded in everything we buy? We can only protect ourselves by insuring ourselves with a policy which goes up in benefits as the dollar goes down. Gold and silver of course.
As happened in 2011, a couple of months ago, both metals went sky high, and the rush was on. I cannot predict the future, but when something happens very quickly, it all seems to smooth itself out eventually. This past week, with gold up $125, and silver up $3.50, I bought a couple of Gold Eagles, which I didn’t need, but I couldn’t resist. Last week, a dear elderly lady called me and said that ‘Don Stott’ sold her some silver in 2009, and was surprised that I was still here. I am, and we had a nice talk. Also a long time customer called and he’s 6 months younger than me, but was delighted to know that his 500 ounce mint box of Silver Eagles were worth $34,900, if he needs it. Have a good week!
-Don Stott don@coloradogold.com