On Wednesday, May 14, the US Department of Labor did what it does every month. It announced the US Consumer Price Index (CPI) for the previous month - of April. The official CPI figure for April was - are you sitting down? - 0.2 percent. This prompted USA Today to run an article headlined: "Inflation may be worse than consumer price index shows".
Indeed.
Here is a quote from that article: "The government's formula dampened April's increase in gasoline costs, which rose 5.8% on an unadjusted basis. The overnment's formula adjusted that gain to a 0.2% drop because gasoline usually rises at this time of year, the government said."
Pathetic, isn't it? But one wonders if the Department of Labor might have gone just a mite too far with their "formula" this time. On May 14, the day that the April CPI figure was announced, spot future Gold closed at $US 866.50. Two days later on May 16 it closed at $US 899.90. That's a rise of $US 33.40 or 3.85 percent in two days.
Outside of the US government (and Wall Street) in the realm of the REAL economy, the situation is deteriorating with increasing speed. A report released on May 16 stated that US consumer confidence has hit a 28-year low. Short-term (price) inflation expectations have hit a 26-year high while long-term (five-year) expectations are at their highest levels since 1996.
Looking at the first two figures above, they are at their highest levels since 1980 and 1982 respectively. Remember, this was the culmination of the "inflationary 1970s", a time when both official measures of price inflation and nationwide official and market interest rates were at their highest levels in US history. In those days, the Fed Funds rate fluctuated between 14 and 20 percent. Today, it is 2 percent. At the end of the 1970s, the Fed was doing everything it could to choke off borrowing. Today, it is doing the precise opposite.
Even more grotesque, Treasury Seceretary Paulson was quoted on May 16 as saying this: "I believe that we are on the right path to resolving market disruptions and building a stronger financial system." This statement was made the day after the Fed reported that their direct loans of cash to the US commercial banking system had climbed to the highest levels ever in the week just ended. The Fed is pouring new "money" into the system at a rate unequalled in its history. And this, according to Mr Paulson is "resolving market disruptions". Well, it's true that US stock markets are hanging in there - for the moment at least.
Please recall that in the early stages of the credit freeze, both Mr Paulson and Mr Bernanke were at pains to assure us all that the freeze-up in global lending markets would have no impact at all on the real economy. Today, the impact on the real economy is global with the cost of living in the REAL world skyrocketing all over the REAL world. And now Mr Paulson is saying that the "calmness" induced in the financial markets by this unprecedented level of monetary inflation will lead the real economy back to the promised land "later this year".
First the freeze up in global lending markets was going to have no effect on the real economy. Then it did. Now Mr Paulson says an imminent "thaw" in the lending markets IS going to have an effect on the real economy. Of course what Mr Paulson and everybody else in Washington and Wall Street wants is a return to business as usual. And that is a return to deficit spending and credit expansion with all the lovely new "money" created being obediently channelled back into the financial asset markets where it belongs.
We don't think Mr Paulson is going to get his wish. Nor does any of the plain evidence out there in both the financial asset markets and the real economy support his contentions. What Paulson and Bernanke ARE going to achieve if they maintain their present course is to destroy the US Dollar. And in the process, what they are going to bring about is a complete breakaway by a nation or a group of nations from the presently unravelling US Dollar centric global monetary system. We went into this in some detail in the current issue of The Privateer - the Mid May issue (#603) published on May 11.
The $US 33.40 rise in the Gold price in the two days since the US Department of Labor released their latest US "inflation" figures is ominous. In the late and unlamented USSR, the building of what came to be known as "Potemkin Villages" was a fine art and fooled many a befuddled visitor to the "Socialist paradise". Today, the erection and maintainance of financial "Potemkin Villages" is taking on a very similar hue. But are the facades starting to crumble? The sudden leap in the US Gold price is certainly an indicator that they may be.
On March 17, we added the $US 1000 "X" to this chart - and that is as far as Gold got. As you can see, Gold has descended in three large "spurts" since then, the most recent taking it all the way down below the $US 855 level - Gold closed at $US 850.90 on May 1. Last week, the chart has turned up again with the close above the $US 885 level on May 9. And this week, the chart climbed higher on the back of the $US 19.90 price rise on May 16.
(Chart appears here in original analysis)
We have extended the table below into 2008, even though Gold in all four currencies in the table is now well above its 2006 highs. Gold breaking out to new all time highs in $US terms at the end of January led to bull market highs in all four currencies. And as you can see, in March, Gold improved upon those January levels in all four currencies as spot future Gold closed above the $US 1000 level for the first time ever in the middle of March. But then came the big Gold sell-off - in two stages - the second of which has now bounced from the $US 850 level to now recover about a third of its losses since March - in $US terms.
| |||||||||||||||||||||||||||||||||||||||||||||||||