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April 22, 2005

Thank You, Captain Obvious
by Joshua Fritsch

"Under existing tax rates and reasonable assumptions about other spending ... projections make clear that the federal budget is on an unsustainable path, in which large deficits result in rising interest rates and ever-growing interest payments that augment deficits in future years,"

"Unless that trend is reversed, at some point these deficits would cause the economy to stagnate or worse."

These words emanated from the mouth of Alan Greenspan today (Reference). The words themselves are unremarkable. What makes these quotes noteworthy is the fact that one of the most powerful men in the world is presenting them like it's a surprise. As if the monetary policy pursued by the Fed, and the atrocious spending habits of the U.S. government could have created any other situation! The truth is, the Grand Inflationist is trying desperately to cover his butt. He knows a train wreck is coming and that his only hope of staying out of the historical Hall of Shame is to launch a "preemptive strike" of fiscal warnings, thus giving him grounds to claim he "warned us" of the impending catastrophe. What he isn't saying is that this catastrophe is one of his own making.

Jump

I'll warn you now - - my thoughts are rather jumpy today, and it seems to be spilling over into my writing. I hope you can stay with me...

I made a quick run to the supermarket this evening, and as I waited in the checkout line, I read the text of a small notice that had been taped in plain view. It went something like this:

To our Valued Customers,
The recent price increases in milk, cheese and other products are not the result of store policy. The added expense is at the wholsale level, and we are actively working with our suppliers to decrease our costs. We strive to always provide the best value to our customers, and we appreciate your patience on this issue.
The Management

This should not come a shock to anyone - - the price of milk, eggs and cheese (not to mention the price of gas!), have been relentless in their climb. Funny how all of the everyday items that we need are the very same items that are excluded from the "core" price index! (CPI) Talk about a sham! We are repeatedly told that inflation is under control, but if that is so, why are our wallets being squeezed so hard? Couple this with the fact that most businesses are so nervous about their cost increases that they are giving out meager raises and you have a recipe for serious inflationary disaster. Let's see if we can dig up some information on the true inflation rate. We'll follow the "Keep It Simple, Stupid" principle and use just two core examples, milk and gasoline. We all buy them pretty regularly, so I think this is a good (albiet narrow) view of the increase in our everyday expenses. We'll expand on this in just a moment. (Note: Milk prices shown are Class I)

Whoa! The "tame" CPI of under 3% per year sure doesn't seem to apply here! Aren't groceries and gas what hit our wallet the most often? How can anyone with a brain exclude these items from the inflation measurement? I'll tell you how...because they're desperately trying to hide the fact that an inflationary tidal wave may be just around the corner...in fact, it seems to already be lapping at our feet. Think about it for a moment - - using just these two items, milk and gas, what all is affected? Well, for milk that will bump up the price of:

• Butter
• Cream
• Cheese
• Ice Cream
• Yogurt

Just to name a few...how about gas?

• Personal Vehicle Use
• Bus Fares
• Taxi Fares
• Train Fares
• Airplane Tickets
• Delivery via everything but a bicycle or skateboard.
• Oil-based heat

This list is sounding rather "core" isn't it? Let us not forget that the chain goes on and on. If the price of cheese goes up, so does the price of a pizza. If transportation costs rise, so will everything from the price of a stamp (doesn't the post office drive to your house to deliver the mail?) to your property taxes (the schools have to fuel those buses that carry our children). Don't forget to tack a buck on to the price of your Starbucks Latte.

Jump

Thankfully, all is not lost! While we have little chance of dumping the Fed and the hopelessly corrupt politicians out on their ears without major war and disruption, we can at least protect ourselves from their foolish policies. Gold, the Inflation Barometer, has perked up in the last few days - - if we really are in for a highly inflationary ride, then there's no safer place to park your hard-earned money. Think about it.

Joshua Fritsch
TheMarketTraders.com

Disclaimer: The information contained in this article is believed to be factual, however, the author cannot be held responsible for mistakes or intentional deceptions on the part of the sources. Trading and investing of any type entails risk, and that risk is assumed solely by the trader/investor.

Copyright © 2005 Joshua Fritsch

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