Hyper­in­fla­tion Spe­cial Report (2011) [Shadow Gov­ern­ment Sta­tis­tics]

A detailed look at what’s likely to hap­pen to the econ­omy in the near future. The site where this is posted takes var­i­ous promi­nent government-published sta­tis­tics that are widely accepted as reflect­ing the state of the econ­omy, and deter­mines what they would be based on the way the gov­ern­ment used to cal­cu­late them in the past before chang­ing them to hide the true eco­nomic sit­u­a­tion from the chumps voters.

I’ve observed that some peo­ple have the idea that the US dol­lar is a safe store of value, and that if you buy $10 mil­lion worth of US trea­suries, “you can assume that the money you put into the US is going to still be there when you need it.” I couldn’t rec­on­cile this idea with my own mem­ory of chang­ing exchange rates, so I decided to do a bit of dig­ging into his­tor­i­cal exchange rates.

Sup­pose a hypo­thet­i­cal rich Euro­pean has €10 mil­lion that he wants to keep safe as of July 31^st, 2001. He puts it all into Dol­lars, which at the time gives him $8,752,050. Now, ten years later, he decides to con­vert his dol­lars back into Euros, and he gets €6,137,480.09.

If our hypo­thet­i­cal Euro­pean had instead decided to store his money in Swiss Francs (given their rep­u­ta­tion as the least worth­less fiat cur­rency), his €10 mil­lion would have got­ten him 15,127,900 Swiss Francs ten years ago. Con­vert­ing those Francs back into Euros today gets him €13,249,166.10.

Finally, let’s sup­pose I had €10 mil­lion on July 31^st, 2001. I had to look else­where for the gold price in Euros ten years ago, but found that this would have got­ten 32,559.71 ounces of gold. Today, that would con­vert back to €52,544,860.

I think it’s pretty obvi­ous that if you’re look­ing for a safe place to store your wealth, the US Dol­lar is emphat­i­cally not it. In fact, attempt­ing to safely store wealth in any­thing other than gold is a good indi­ca­tor that some­one either knows noth­ing at all about eco­nom­ics (which is actu­ally the norm for Amer­i­cans) or else is pro­foundly stupid.

Today the price of the ice-blended mocha I buy reg­u­larly at the Star­bucks down the street went up to $4.55. It was only $3.70 a cou­ple of years ago when I started buy­ing them there reg­u­larly. If I’m not mis­taken, that’s a yearly price increase more than dou­ble the infla­tion rate that the Feds admit to.

I came across this old post, writ­ten over six years ago on my old weblog:

Infla­tion con­tin­ues to fall as buy­ers keep the pres­sure up on sell­ers. This also means that a 3–4% wage increase this year and a 10% increase in hous­ing prices will have a major impact on real per­sonal income and wealth. Another three years of this and we will have repli­cated the gains in real per­sonal wealth over the last two decades (for most Amer­i­cans — this is in con­trast to the rapid stock mar­ket dri­ven gains over the last 20 years for the nation’s wealth­i­est indi­vid­u­als). Nice. [John Robb’s Radio Weblog]

There are some prob­lems with this the­ory. The most glar­ing is that he’s treat­ing infla­tion as syn­ony­mous with some vague sta­tis­tic about con­sumer prices. In fact, infla­tion is an increase in the sup­ply of money–this may lead to an increase in prices, or it may not, depend­ing on other fac­tors. The US has been inflat­ing its money sup­ply for years with­out prices going up much, because we send the money over­seas to pay for import goods. That can only work as long as over­seas sell­ers are will­ing to accept the dol­lars (or have no choice).

The hous­ing price increase is the result of another bub­ble. The Fed­eral Reserve is still inflat­ing the money sup­ply, but now instead of the money going into smoke-and-mirror “dot com” stocks, it’s going into real estate. This is bad for any­one buy­ing a house now, because when the bub­ble bursts, they’ll be stuck with a house worth less than what they paid for it, but their mort­gage pay­ments will reflect the inflated price.

To me, that’s even worse than los­ing money buy­ing lot­tery tick­ets dis­guised as stocks. At least you can just accept your loss and move on, instead of being stuck either mak­ing exces­sive pay­ments for 30 years on a house or else going through the has­sle of sell­ing it at a loss.

When I wrote that, it hadn’t occurred to me that those house buy­ers could legally walk away, but as it turns out they could.