No Inflation! Consumer Prices Drop.

by | Feb 21, 2010 | Headline News | 11 comments

Do you LOVE America?


    According to the recent CPI report, consumers need not be worried about the threat of inflation resulting from an infusion of trillions of dollars of stimulus, bailouts and other government spending. The prognostications of doom and gloomers that gas prices will reach $10 a gallon, a pound of rice will cost $8 and a Starbucks latte will run $15 seem to be just another apocalyptic vision gone bad if you consider that US consumer prices fall for first time in 27 years:

    Core consumer prices in the United States fell last month for the first time in 27 years, making an imminent rise in interest rates even less likely.

    The Labor Department said that the Consumer Price Index (CPI), which measures the price of goods and services bought by households, rose by a seaonsally adjusted 0.2 per cent in January

    When food and energy, the most volatile categories, were stripped out, however, the index fell by 0.1 per cent as the cost of new cars, airfares and housing fell.

    Declining rental costs were the driving factor behind the fall in core prices, as homes that could not be sold in the property slump were put up for rent, driving down the rental market.

    It is the first time that so-called core prices have fallen since December 1982. The core price index is more closely watched by economists than the wider index.

    In Gold Projection: Price Collapse to $250 an Ounce we offered the opinions of a variety of market analysts and economists who suggest that we are currently in a natural state of deflation, but prices have been kept up (until this most recent CPI report) artificially by more money being pumped into the system in much the same way prices (real estate, commodities) were inflated from 2001 through 2007.

    If this is the case, then any pull back in monetization and emergency spending programs will likely lead to a re-collapse of not just stock markets around the world, but most other asset classes. This is a view shared by most, including the Obama administration, the Fed and Treasury, who are being very careful with how they pull back on stimulus programs.

    We’ve pointed out before that the real question is: how far are the powers to be willing to go with inflationary monetary policy?

    Our answer, a view shared by Marc Faber, is that they will go all the way – unrestrained borrowing, monetization, institutional lending, and toxic asset investment.

    While deflation seems to be the real threat as the credit expansion on a personal and commercial level has completely collapsed, we must not forget that the chairman of the Federal Reserve has said that if it is necessary to drop money from helicopters to avoid deflation, he will do so.

    So while we may see near-term deflationary effects across all asset classes, our long-term view is best reflected in Wealth Preservation, Investing, and Prepping in 2010, where we recommended that those concerned with avoiding price increases in essential goods invest accordingly:

    The trend going forward during this economic depression is getting back to basics. We often discuss ‘prepping’ as a way to protect your family in the event of an unforeseen catastrophe (natural or man-made). Recently, we’ve seen more financial analysts and advisers recommend shifting from traditional investments like stocks, bonds, CD’s and money market accounts, to tangible assets that will gain value regardless of what stock and bond markets do.

    Of course, we’re not saying you should go out and spend your entire 401k retirement account on 5 gallon buckets of rice, but diversifying into hard assets on a variety of levels could be a great investment. As the US Dollar continues its decline over the coming years, the price of essential consumer goods is likely to rise. Certain goods, however, like real estate, cars and anything that is driven primarily by credit expansion may experience a deflationary impact in real dollar terms, while others, like food and energy may see explosive price increases.

    The government of the United States sees deflation as a threat – we are at war with collapsing prices resulting from massive credit expansion over the last several decades.

    And this is one war that the government has set its mind on not losing.

    The current direction of our monetary and fiscal managers suggests that we will continue to wage this war regardless of the collateral damage, which in this case will eventually result in the complete destruction of the US dollar and the United States’ standing as an economic world leader.


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      1. I’m very leary about Gold. If our economy or the world economy collapses Im not sure Gold is going to be worth what it would have been in dollars. I mean $1,300 an ounce! Thats one coin! If you need food like rice or wheat, who is going to give you change for that $1,300 dollar gold coin? You know what I mean. In this current economic / world crisis it would be wise to first make sure you are stocking up on food /water first. Longterm storage would be wise, buckets, mylar bags with oxygen absorbers, #10 cans, the whole works.  Afterwards, depending on how much money you actually have to spend I would then maybe look at Gold, Silver etc. When the crash happens, the only thing worth anything will be that which is in your possession.

      2. what the hell? First inflation’s going to hit and were going to look like Zimbabwe….and now it’s not?

        Are we going down in 2010? are we going up? what is going on?!?!

      3. I’m late to the prepper scene…have plenty of firearms and ammo, always have.  Currently studying about local flora i.e. wild edibles, etc.  There’s very little we can do about massive increase in energy; gas for your vehicles, home heating.
        I throughly researched dry goods and determined to build up bulk levels of lentils and white rice.  Both take little in the way of fuel to cook and eaten together make up a complete protein, are high in carbs, fiber and minerals and stored in a cool, dark location have an indefinite shelf-life. 
        I understand very little about economics but I do know this;  you can’t spend this kind of money and it be sustainable.  Whether it be deflation or hyper-inflation, a destroyed dollar will plunge the country back into the 19th century.  Thank God i’m not an urbanite.  Societal breakdown will turn the large metropolitan areas into an anarchist’s dream.

      4. Who knows what to believe any more.  In Northern Michigan prices on everything have been going up and up.  I sure as heck haven’t seen any price drop.  Who comes up with this crap?

      5. *Wow this economy is so messed up we are experiencing pockets of inflation and deflation at the same time!

        According to the article short term deflation will bring about hyperinflation at some point in the not so distant future. In other words prices are going down in the near term due to the fact that banks are not lending like they used to.  If there is less credit out there, people will have less money to buy things, which in turn causes prices to go down so people without credit can afford them. The kicker here though is that a massive and rapid increase in the amount of money the government is printing  is not supported by a corresponding growth in the output of goods and services. This results in an imbalance between the supply and demand for the money (including currency and bank deposits). It is accompanied by a complete loss of confidence in the money, similar to what we call a bank run.

        Basic types of deflation
        Four types of deflation can be distinguished. Two on the demand side and two on the supply side:

        Growth deflation. (Increase in the supply of goods. Decrease in cpi).
        Cash building (hoarding) deflation (More savings of cash. Decrease in velocity of money. Increase in the demand for money)
        Bank credit deflation. (Decrease in the bank credit supply by bankruptcy or contraction of the money supply by the central bank)
        Confiscatory deflation. (Confiscation or freezing of bank deposits. Decrease of the money supply)

      6. “Wow this economy is so messed up we are experiencing pockets of inflation and deflation at the same time!”  Tony

        I’m experiencing simultaneous deflation and inflation in my business.  Equipment sales for the restaurant industry are horrible.  Warehouses are filling up because restaurant operators can’t get the loans needed to replace their worn out cooking equipment.  Manufacturers are scaling back on production, creating a shortage of parts to purchase for repairs, making repair parts pricing skyrocket, i.e the price of a gas thermostat for a commercial range has doubled in less than a year.  Think about it:  I’m only talking about one specific industry!
        Contraction and attrition has touched every facet of business in the U.S..  Oops, sorry…I forgot about the one true growth industry today…the Government!

      7. Who knows what to think anymore.  The long term consequences of our .gov actions is inflation.  Short term, can they stay on the tightrope?  Who knows.  Long term though, it’s physics, the laws of nature.  All ponzi schemes come to an end, and the .gov ponzi scheme is about there.

        In the words of an admired patriot:
        1. We’re screwed.
        2. There’s a fight coming.
        3. Let’s win.

        What exactly the “fight” will be is up in the air, one of the many classical SHTF scenarios.  Maybe even a mutant zombie biker attack (MZB-you know what I’m referring to or you don’t…)!  :-)  What does “winning” look like?  I dunno.  I think I’d be satisfied with survival and liberty.


      8. Bill:  What passes for our government comes up with this crap. It will have to be revized next month and the month after that, just like unemployment stats were.

        Tony: I addressed your concerns about gold in other posts but I will summarize here: Gold is a hedge against inflation and is a good way to preserve a portion of your wealth as we pass through the CHANGES and emerge on the other side. Because it will increase significiantly in value after the SHTF it really won’t be useful for small purchases. Silver is better because of its lower value, but it too could rise dramatically in value and may be ineffective as a medium of exchange, but it is a good way for those to preserve wealth who cannot afford gold.

        As someone who owns a precious metals mine, I recommend saving “metal money” : quarters, halfs, and dollars, as “bug out / mad money”. These are and will be instruments of exchange for that tank of gas, or loaf of bread etc, if the greenback collapses.

        Koeth:  Make no mistake, consumer prices are going up. Those stats are skewed by lower housing costs, etc. You don’t have to be a financial genius, or have an MBA, or even have taken ECON 101 in college. All you have to do is track prices at WalMart. Check the SWEATSHIRT HYPER-INFLATION INDEX and you will discover that sweatshirts have increased 20% year over year.

        Check food prices on specific items at Wal Mart, Safeway, Kroger, or your local aupermarket and you will see that prices overall have gone up, not down. Price increases are most notable for fruit, as these are purchased abroad right now (during the Winter) and the price increases for global fruit, like the price of global gold has increased against the dollar.

        Finally, oil has just broken $80 / bbl, reflecting some increased demand globally, but also the decline in the value of the dollar. Even if  global oil demand is flat,  the decline in the value of the dollar (if not against other currencies, then at least against gold) will increase the cost of oil for Americans. I expect both trends to continue.

        The party is over folks. The banksters, a corrupt government, and the military-industrial complex have turned American financial might into third world status. Welcome to the Banana Republic of America.

      9. The final word on the dollar is written in the history books and we should make no mistake about it’s eventual demise.

        The dollar is a Fiat currency and it will fail, those are the cold hard facts. Any hard tangible “metal” asset is worth more and can be guaranteed to always be worth something and if it isn’t worth anything it won’t matter because at that point you or anyone else might not be alive,

      10. As I mentioned in a previous post (by Mr. Katz), I just don’t see how all the money printing by Bernanke is going to get into the economy. By the true definition of inflation, prices must rise due to an increase in the money supply. Yet by many accounts there is no increase in the money supply and in fact there is a substantial decrease! If I remember right I believe M3 money supply has fallen off a cliff.

        However, despite the deflationary setting today we are still seeing rising food and energy prices. No one can deny that. How is this possible?

        As Mr. Katz eloquently described in another SHTF post, the commodity pendulum has completed its arc and is ready to release massive price increases on food due to all the money printing in the 80s and 90s (supposedly after they “licked” inflation). This easy money policy led to the boom time in the 90s and depressed commodity prices at the same time. It also (and this is key) pushed many food producers out of business due to the low prices and consolidated what was left into a much smaller group. Now the food producers cannot afford any more shocks without wholesale raising their prices across the board (as there is nobody left to buy them out, and loans are also hard to come by).

        So in essence we have a perfect storm brewing where we can potentially have massive food price increases (not inflation) in the near term, and yet this won’t show up in official CPI core numbers since food and energy are excluded (and might actually not affect regular CPI that much if the cost of housing and other goods offsets it).

        If I am thinking right, we could have deflation for the banks and assets (ie net worth) at the same time as rising food/commodity prices for the people, creating an untenable situation. As food prices rise further, so does the effects of deflation on everything else.

        What I find interesting is that during the Great Depression FDR purposefully destroyed crops to keep food prices inflated, even in the midst of the worst banking deflationary crisis ever. This seemed counter-intuitive to me at first, until I realized we were a much larger agrarian based society back then and the government couldn’t let half the food producers go under due to falling prices, especially with the drought conditions crippling the mid-west at the time. What’s interesting this time is that we appear to be upon that same precipice once again. What if government doesn’t have to keep food prices high because they’re going to go up anyway due to the commodity pendulum? Maybe the government did learn something after all?


        The price of gold will go down temporarily over the next six months.  The Fed is doing everything it can to assure this.  They want to crash it. Then, it will go right back up as true inflation kicks in.  I knew buying my gold last year that it would rise and then crash, but will go back up again even higher.  The Fed can not print all of the money they are creating without ramifications.  Be patient.  And, diversify- making sure to have have hard assets, food, etc as well.

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