Gold & the Fed’s Bastardized Definition of Inflation

Whether the elites are headed by a President of hillbilly origins, like Bill Clinton, or “blue blood,” like the CIA-connected Bush family, they urinate down the backs of Americans and tell them its raining.

Austrian economists know that when money is created out of thin air, as has been the case of the dollar since August 15, 1971, you inevitably have rising prices. The elites from Harvard, Princeton, and Yale who specialize in urinating down our backs and tell us it’s raining have been telling us common folks that we have no inflation. In fact, they tell us we have too much inflation for our own good—so they continue to print more and more money, as they tell us it’s for our own good!

But whose good is it really for? The chart upper left shows who benefits and it most certainly is not the working class, who provide the goods and services for everyone. The fact is we have had massive inflation in asset prices, which is how wealth has been clandestinely stolen from those who produce it—the miners, manufacturers, farmers, and investors—and handed to the bankers and government and, to an extent, the welfare class.

I have recognized the existence of this form of inflationary theft, which is why I have included a broad spectrum of international stocks in my Inflationary/­Deflationary Watch pictured on your left. From a base line of 100 in January 2005 to a high of 160 in 2011, the entire dollar-based monetary system has been inflating, big time. But most all of this measure of inflation has occurred in financial assets, with very little taking place in commodities, which reflect the real economy.

My real concern has always been which path toward destruction our existing evil, deceitful, fiat would take. Would it be a path like that of the 1930s in a hyperinflationary depression? Or will it take a path akin to a German hyperinflation? More importantly, what might be some of the keys to tipping us off to the direction of the system’s inevitable destruction? A recent radio interview with Alasdair Macleod that you can listen to at has me leaning toward the hyperinflationary scenario based on the economic dynamics following QE. Rates are pushed down to ridiculous levels, but Mother Nature requires a return to the sanity of higher rates toward equilibrium. As that starts to take place, banks that had been holding U.S. Treasuries suddenly start to lose money on those holdings, at which time lending to the real economy starts to look a lot less risky than buying U.S. Treasuries. That in fact is now taking place whether the Fed likes it or not. As those trillions of dollars created out of thin air exit U.S. Treasuries and enter the real economy through bank lending, a shift from financial asset inflation to commodities and the real economy is likely to take place. All manner of economic dislocations will become visible. If this is the path that is taken, owning gold bullion will be more important than ever and owning low-cost gold producers will be especially lucrative.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.