Some time ago I published a post on the validity of undertaking investment activities during a financial crisis, today I want to take a step back and analyze with the simplest possible numbers, the situation in which the economic world is raging.
The immortal worm of the whole system is inflation, which appeared when, in 1971, the decision was made to separate the paper money in circulation from the underlying gold stored in central banks.
I report what the nobel prize for economics Milton Friedman said:
"Inflation is a monetary phenomenon. It is produced or stopped by central banks ".
This is enough to open your mind ...
But let's move on.
In the graph below we see the trend of the printing of dollars by the Fed.
As it is easy to understand, after an almost constant growth (not that it was a normal and right thing, but the phenomenon was under control!) We had a first jump in 2009 with the sub-prime USA crisis, then gradually the growth was exponential: if we observe, in 2014 alone they were double the dollars in circulation, so from around 2800 we reached over 4000 billions of circulating dollars.
And let's not take into consideration the helicopter money of 2020 and what they will necessarily have to face in 2021!
This clearly reflects on a devaluation of the purchasing power of the dollar itself, but if we look at the graph below drawn up by the Bureau of Labor Statistic of the CPI (Consumer Price Index), we note with great pleasure that inflation has remained stable between 2.5% and 0% with a negative peak around 2009.
Magic of numbers, you will say. This magic was made possible by a shrewd management maneuver of QE (Quantitative Easing), but the rope has been tightened too much and it will not be able to repeat the magic of past years.
In contrast to the CPI, let's try to compare it with another index drawn up by Ed Butowsky's team: The Chapwood index.
This index shows the percentage increases on the 500 items on which most Americans spend their money. It is a weighted average but the reverse-engineering of this index is hard to find, since formulas used for the calculation (as well as the types and locations where goods’ prices were picked) are not available. Let’s just use this as a form of general comparison between financial inflation and actual inflation.
As we can see, the increase in prices is between 10% and almost 13%: actually we are speaking of a “de-facto” inflation in the range of 10-13%.
So the data are contradictory ...
Not exactly.
In the case of the CPI, consumer products that most Americans buy are not used, but they are goods that statesmen have defined as essential, and it is not certain that they have risen in line with inflation.
Apparently a 10% increase in product prices may not be so alarming, but if we apply the rule of 72, the matter becomes rather worrying: in just over 7 years any good I would have paid 2 dollars, it would have doubled the price in this timespan!!!
The problem becomes even greater if we think that the dollar has become the reserve currency of any state, in short it would have a domino effect with disastrous consequences.
In this situation, where trust in governments and institutions is increasingly lacking, it is necessary to be able to take over the fate of one's money, I have some solutions I am applying, which do you think is possible to apply and why?
At this link you can read more about the Chapwood Index and its empiricity
