The definition of inflation has been deliberately modified from the reality that inflation is always a result of too much “money printing” that creates NOTHING of value but creates more money chasing fewer goods. There are fewer goods because the “printing” temporarily takes the place of production and allows those at the top to get something for nothing- for a while.

Most people would define inflation as rising prices- which is the RESULT of inflation- not the cause. This is the way those “in charge” want it. This allows them to avoid blame for their own deeds.

The reason that this is so important to understand right now is that there is a lot of speculation that the Fed will raise rates to fight inflation. There are others who still believe that they may lower rates to try and keep asset prices elevated.

Recent history suggests that raising interest rates would slow down inflation. That has been what we have seen in the entire time that most of us have been alive. We have also seen that when rates get lowered it generally has propped up stock, bond and real estate markets.

I believe that, because of the massive debts that have been run-up, the paradigm has changed and that either move could prove to be VERY problematic.

If the Fed were to lower rates that means that the “printing” would have to go into hyper-drive and inflation could become unmanageable very quickly. While it would likely give a short-term boost to asset prices (all prices would rise to reflect a collapsing dollar) it could lead to catastrophic price rises that could put those at the edge of the financial cliff right over the edge. Keep in mind the Fed doesn’t have a magic wand- it has to conjure up the cash to buy the bonds to reduce the rates.

While many may be expecting a rate cut prior to the elections to goose the economy you may want to rethink that because if people are having trouble paying bills now (MANY are) it could make the situation far worse and as Bill Clinton once said, “It’s the economy”. People vote many times with their wallets.

Raising rates could also pose a major problem. The Fed is conjuring up trillions in an effort to keep the illusion alive that we are still productive and solvent. This has led to a stunning near $40 TRILLION national debt- which is the tip of the iceberg and disregarding all of the “off balance sheet spending” like Medicare, Social Security, Veterans benefits, Wars, etc. we still have interest payments due of over $1 TRILLION just for the admitted debt.

A lot of the trillions conjured up are to pay interest, retire maturing debt, enable current spending, and manipulate interest rates and bond prices. While, in the past, raising rates would slow down economic activity and take a bite out of inflation the crushing debts that we have today could actually cause that theory to backfire.

Assuming a $40 TRILLION debt, every 1% rise in the interest rates would cause another $40 BILLION in interest expense just for the Federal government. Since we have no piggybank to tap more “printing” would be required and could actually lead to more inflation and more economic pain than lowering the rates.

This doesn’t even take into account the carnage that could be unleashed on all other bonds- city, state, corporate, or the rates for consumer credit, mortgages, car loans, etc. I also have to wonder just how many companies could go belly-up if they lost access to cheap credit which is keeping MANY companies alive right now- known as ZOMBIE companies where actual profits can’t even service existing debt without more cheap debt being added.

To me, if rates are actually raised it could be the worst of both worlds. Higher inflation, slower economic activity and a likely revaluation of those assets being artificially propped up for the past 40 years. The damage could be historic.

I don’t believe those “in charge” really care about anything but their pockets and their personal safety. This leads me to believe that they are aware of this situation and are looking for a way out that will absolve their responsibility.

Gerald Celente says “When all else fails they take you to war”. This lays the blame elsewhere and has been the M/O in the past. That doesn’t appear to be working either.

When our president took office there was a lot of talk about monetizing national assets. That is a fancy way of saying we are using our assets as collateral to possibly retire our debt. This could be in the cards since lowering or raising interest rates may no longer work and they likely know it.

Many options exist like our abundant natural resources, gold (if we still have it), silver, almost any ASSET that we possess in the USA could be used. One of the most talked about solutions is to revalue our gold stock. If we have it, that would be the most likely asset to be monetized because the world has recognized gold as money for over 5000 years. Compare that to fiat currencies whose average life span is about 1/20th. Of that in history. All have collapsed over time because of human nature wanting “something for mothing”.

ASSETS have to be produced, refined and every aspect of production adds VALUE. What is the VALUE of something you can conjure up trillions of with a few mouse clicks and virtually no cost? What is the VALUE of all the promises made that can’t be kept?

These questions should be pondered by everyone ASAP. Whether it is gold, silver, natural resources, energy, water- whatever ASSET it may be if you own it the asset is yours and you don’t have to count on promises that may or may not be kept.

While anything is possible in the situation we find ourselves in, those who try to understand our current situation and make plans to survive and hopefully thrive will be in a lot better position than those burying their heads in the sand and keeping their fingers crossed that tomorrow will be the same as yesterday and today.

Be Prepared!

Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

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