Inflation Cometh

Regular readers know I have written a series of articles on precious metals as investments, specifically silver as a storehouse for one's personal assets and as a hedge against inflation. If anyone has bothered to check silver prices in the last week they see silver exploding to new heights unseen since the Hunt brothers tried to corner the silver market in 1980.

Why is silver exploding so? I-N-F-L-A-T-I-O-N!

Inflation is classically defined and described as "more dollars chasing the same number of goods." When more dollars chase the same number of goods we see supply and demand go off kilter. In a low inflation environment demand will dictate price. Low demand means low prices; high demand means the opposite. When inflation rears its head it effects price but not demand. How? Again, more money chasing the same number of goods.

With the nation borrowing 35% or so of what we spend every year, we make ourselves weaker as a nation. As Standard & Poors just did, it can lower a nation's credit outlook and they did that on Monday. And look at what silver has done since Monday. On Friday April 15 Silver closed at about $42.50. At this moment silver is trading at. $46.00+. The silver increase in 4 days is 8%. This is significant because as consumer confidence wanes, precious metal values climb. Clearly the evidence is in...inflation is here folks.

Add in oil trading near $110 a barrel...that's big time inflation. Oil is skyrocketing for sure and that is hurting consumers. Food prices are way up too. With the Fed printing money to increase the amount of cash flowing through the system, the perfect storm is coming like the Japanese tsunami. When we couple high unemployment, inflation beginning in earnest and budget deficits three and four times higher than in 2008 and we can see why things are, unlike the Administration assures us, getting worse overall.

The reason inflation remained low until recently was because of the recession. Less workers buying less consumer goods kept prices flat. But once government prints massive amounts of money merely to "improve" cash flow we see the results. When we use a primary food grain that feeds humans and most livestock as fuel we see what happens...shortages and price increases. When external political conditions drive up the price of oil, we see what happens. Now add them all together and we really see what's happening - INFLATION!

Historically a nation can handle inflation and unemployment. What it can't handle is the perfect storm of all these factors meeting at one place in time...government printing cash; politics driving oil to astronomical expense; primary food grain and feed grain shortages or pressure and massive government borrowing and deficit spending. This will only get much, much worse until government slashes budgets and stops running the printing presses.

Once government shows they will lead the way in acting economically responsible, consumer confidence will return. When and if that happens everything will improve. People and companies won't hoard their cash resources. Personal spending and business investment will go up and when those two things happen the recession will improve and unemployment will lessen.

So long as the Administration continues to do what it has done...keep threatening to raise taxes; run the government printing presses; massive deficit spending; encourage class warfare and NOT let us use our massive energy reserves which all told are the largest in the world when shale, oil, gas, coal, etc are included, and what we see now is only the beginning of the pain. Don't believe me? Then why is silver exploding up 8% in four days? Riddle me that one.