Lower Inflation But Why Don't You Have More Money?
I would like to introduce to you, as a guest author, a friend of mine, Victor Sperandeo, also known in his world as “Trader Vic.” I recently asked him a question, “Why do we hear that the economy is improving but it seems like Americans still do not have ‘extra’ money to spend. Victor answered my question, by sending me this article and teaching me an economics lesson. I am sharing this lesson with you, because I found it so educational. Hope you learn something, too.
Victor Sperandeo serves as the President and CEO of Alpha Financial Technologies, LLC (AFT), is a founding partner of EAM Partners L.P. (EAM), and serves as the President and CEO of its general partner, EAM Corporation. Victor Sperandeo is a trader, index developer, and financial commentator based in Dallas, Texas. He has over 45 years’ Wall Street experience trading both independently and for many notable investors. Mr. Sperandeo is widely regarded as an expert in commodities, particularly in the energy and metals sectors. His market crash prediction during the September 1987 Barron’s interview earned him great recognition and highlighted his deep understanding of financial markets. Author of three books detailing his philosophy: Trader Vic — Methods of a Wall Street Master, Trader Vic II — Principles of Professional Speculation, and Trader Vic on Commodities: What’s Unknown, Misunderstood, and Too Good To Be True 2008 Inductee into the Trader Hall of Fame by Trader Magazine and included on Ziad Adelnour’s list of top 100 Wall Streeters
Inflation: Why Hasn’t It Increased?
By Victor Sperandeo
I want to discuss why inflation hasn’t increased during the past decade. Ironically, inflation has decreased to 56-year lows during the period from 2009 to 2017. During this time U.S. debt virtually doubled, with M-2 compounding at 6% from December 2008 to April 2018. The Federal Reserve and leading economists have said they don’t know the answer.
To have inflation commodity prices must perform better. Commodities are non-correlated to stocks and bonds while they are highly correlated to inflation, volatile interest rates, and high or rising GDP growth rates. All of these were at historic U.S. 240-year lows over the last 9 years. Using the CPI to represent inflation, inflation made continuous new lows ending in 2017 at a compounded rate of 1.61% on a ten-year rolling annual basis. The five-year rolling annual rate also made new lows but has since recovered by 7 basis points. Since 1961 the five-year low was 1.36% (2012-2016), but now from 2013-2017 is 1.43%.
The reasons for the decline in these economic barometers were the policies of President Obama. The “change” brought to the nation included increased regulations (see Todd/Frank), higher taxes for everyone (see the end of the Bush tax cuts in 2012), and the creation of Obamacare, a.k.a. the Affordable Care Act (ACA). The ACA was effectively a huge tax on the middle class disguised as an insurance policy, which was then redistributed to the lower class, who got health care insurance policies at way below the market prices, by subsidizing the insurance companies. As a consequence, Obama transformed America into a virtual Corporatist/quasi-Socialist State. Today the U.S. is essentially an oligarchy of party leaders and federal judges, who are controlled and heavily influenced by multinational corporations, and outside special interests. They operate much like cartels. In short, we now have government similar to that of a banana republic.
Therefore, with 0% nominal Fed Funds rates for seven years and three large Quantitative Easing (QE) programs, combined with an increase in the Federal Reserve Balance sheet from $800 billion to $4.5 trillion, why isn’t inflation at least approaching historic compounded levels of 3.10% that were seen between 1913 and 2017? The primary reason is: when you execute extraordinary amounts of printing of paper money via QE, i.e. buying government debt, and other assets, such as mortgages, the cash created “out of thin air” goes only to the very few investors who own those assets in large quantities. No inflation occurs,
as those investors don’t spend that money, but rather invest it in assets such as equities, real estate, other debt, and art. Prices for these assets rose to historic levels as a consequence. This is called “wealth creation” instead of inflation. This Fed monetary and tax policy is also encouraging corporate stock buyback programs, which caused the velocity (or turnover) of money (via M2) to decline to the lowest level in 60 years, or 1.4 times. This, coupled with a lack of investment in new plant and equipment – causing capital expenditures to decline – resulted in a major decline in productivity to 0.7. That in turn had led to stagnant medium incomes over the last 20 years. (This doesn’t even take into account the Free Trade thinking that caused the 19.8 million manufacturing jobs to decline to 11 million since NAFTA was enacted.)
If the bulk of people don’t get the money, they can’t spend beyond their revolving credit card limits. Household non-revolving credit debt (house equity and auto loans) is at record highs as of January 2018. Total household debt is $13.2 trillion, also a new record. Credit card interest rates average 19.9% and range from 9.9% (often only as a promotional rate) to 29%. Contrast this to corporate debt which despite being at record levels costs around 3% to 3.25% on seven-year term debt. This is the rate corporations are paying to borrow money to buy back stock. Inequality exponentially increases while the middle-class standard of living steadily declines; meanwhile low but steady inflation still takes its toll (for which nobody blames the Federal Reserve?).
Since 2008, “financial repression” has been in effect with interest rates below inflation. This is why stocks go up but no major actual inflation occurs. In effect, it is a method of government theft of individual savings; inflation is a stealth tax. So, people hoard more as they earn less and their savings decline. For
example, the 90-day Treasury Bill yield at the end of March was 1.71%, while the CPI was +2.36% year over year. This makes government and corporate borrowing virtually free. Historically (since 1926) T-Bills have traded at a compounded rate of 70 bps above CPI, not 75 to 50 bps below CPI. This is what is meant by “Government is created to serve the rich, while enslaving the poor.”
Moreover, these increases in government debt are not sustainable. This is an existential threat to our Constitutional Republic’s political structure. Normally a nation with a printing press never defaults by bankruptcy, but rather by hyperinflation. This in turn historically has led to authoritarian dictatorships (see Napoleon and Nazi Germany). I should also mention these schemes of “Universal Basic Income” such as Facebook CEO Mark Zuckerberg is proposing would most likely cause hyperinflation, as people would get free money estimated at $36,000 a year per family, and certainly they would spend it.
In June 2017 the CBO projected that total stated debt would grow to $30.7 trillion in 2028 (up from the current $21 trillion). However, in March 2018 that estimate was increased to $33.2 trillion, or an additional $254 billion per year. Interestingly, they also raised their revenue estimate over the same period by over $1 trillion (even after the latest tax cuts). So, these higher debt projections already take into account increasing revenue! This assumes no recession during the period, which I estimate would increase debt by additional $12 trillion (making US debt $45 trillion). Not to mention our unfunded liabilities which could be anywhere from $100 trillion to $220 trillion in ten years going forward.
It should be noted that the longest recovery since 1854 – when the NBER began to keep track of such statistics – was 120 months. We would reach 121 months in our current recovery in July 2019. To think (via the CBO projections) the US can go 10 more years in recovery (for a total of 227 consecutive months) is like 
assuming the US will win the lottery; it may not be impossible, but it is highly unlikely. That is, unless you’re a politician (or the CBO) who lies for a living. Certainly, the borrowed times we live in will not be the future we assume we know?
At the bottom line are two fallacies. The first is the idea that paper money wealth will protect you, and what you see in asset prices around the world is accurate. Interest rates are manipulated by governments to the extremes in the history of civilization. Therefore, we come to the second fallacy: the belief that prices are real.
How is this mindset allowed to persist, and why is this growing danger consistently ignored? This kind of thinking is based on “perception policy” to keep the sham going. The situation was best described by Ayn Rand in her novel The Fountainhead: “The hardest thing to explain is the glaringly evident, which everybody has decided not to see.
www.LibertyFirstUniversity.com
We have so much to be thankful for. Let us not forget that Liberty is a gift that was purchased for us with great sacrifice. Among the many things we have to be thankful for, we must be eternally grateful for the wisdom of men and women that understood that Liberty was a gift from God and that all God’s gifts are worth our every sacrifice. John Adams, in a letter to Abigail in 1777 expressed this sacrifice.
Our founders knew that Liberty is a combination of two equally important parts – it is FREEDOM under the constraints of MORALITY. Liberty cannot survive where there is pure freedom. Pure freedom gives man the right to do whatever is right in his own mind: cheat, lie, rob, murder. Pure freedom is anarchy. At the same time, Liberty cannot survive with moral law alone. Moral law not mingled with freedom is theocracy. Theocracy in the hands of men is tyranny in the name of religion. Our founders attempted give us this balance and secure the blessings of liberty for us in our founding documents. If we abandon our history, we abandon our founding documents and disregard our moral foundations, then liberty is in peril.
“I have my fears. Yet, notwithstanding the complicated difficulties that rise before us, there is no receding; May nothing ever check that glorious spirit if freedom which inspires the patriot in the cabinet and the hero in the field, with courage to maintain their righteous cause, and to endeavor to transmit the claim to posterity, even if they must seal the rich conveyance to their children with their own blood.”
“The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph. What we obtain too cheap, we esteem too lightly: it is dearness only that gives every thing (sic) its value. Heaven knows how to put a proper price upon its goods; and it would be strange indeed if so celestial an article as FREEDOM should not be highly rated.”
The focus of our education should not be on the flaws of the men who gave us our Constitution, but on the exceptional principles that they gave us. We have an exceptional union where “all men are created equal and endowed with certain inalienable rights.” A land birthed by the principle that the power of the government is to be held BY the people and not where the government holds power OVER the people. A country that believes the principle that says all are free to worship according to the dictates of their conscience, and all are equally free, “Jews, Turks, pagans, AND Christians.” We have prospered based on the principle that ideas and hard work open the door to prosperity regardless of bloodline, skin color or social status. A land that has remained free based on the principle that liberties remain secure by maintaining the right to defend self, property, and Liberty.
The supreme Court recently rendered an opinion in the case Murphy v NCAA regarding the State’s ability to legalize sports gambling. The majority Court opined that the Tenth Amendment made The Professional and Amateur Sports Protection Act (PASPA) unconstitutional thereby taking the stance that the States were not only not bound by this federal law, but that the States could indeed, pass legislation to legalize sports gambling within their State. (To better understand this particular opinion, please 
It is within the distinct separation of powers between the States and federal government that the Constitutional difference exists between States legislating sports gambling and States denying the Uniformed Rules of Naturalization. Simply put, the power to establish Uniform Rule of Naturalization is a power delegated to the federal government through the States’ Constitutional compact, the power to make laws regarding gambling is not. (NOTE: The assertion that the federal government is empowered to regulate gambling through the “commerce clause” is an errant expansion of federal power through “interpretation” not intended by the drafters. 
Every State that enters the Union under this Constitution, must agree that this power is delegated to the federal government and must admit they do not have the authority to alter those standards. If they do so, they are violating the terms of the Constitution they agreed to when entering the Union and are breaking their fiduciary duty to the other States.
The supreme Court was correct in its opinion to say that PASPA does not control the States. However, to claim Murphy v NCAA creates a precedent that will allow States to create their own standards for applying the benefits of citizenship to aliens is errant and dangerous. If the courts suggest that a State can create its own standard for citizenship, then what will prevent a State from refusing citizenship status to person based upon their religion, skin color, or political ideology, and then subsequently demanding that standard upon other States?
In a baby step back toward protecting reserved State Powers, the Supreme Court on Monday overturned a twenty-five year old federal law called The Professional and Amateur Sports Protection Act (PASPA). The Act was originally signed into law in 1992 to target organized markets for sports gambling. This federal law was not a flat ban on sports-gambling schemes, but only a law that prohibited States from permitting sports gambling by State law.
In these cases, the supreme Court recognized that there are separate and independent jurisdictions that exist within the two sovereign spheres of government; the State and the Federal. When the power has not been delegated to the Federal that power remains in the State and outside of the Federal’s power to impose laws upon the State. Following this same standard established by the Tenth Amendment in the Constitution, Justice Alito and the majority court recognized the State’s authority to regulate gambling lies within the sovereign realm of the state’s authority and that Congress directing state legislatures to prohibit sports gambling is not an enumerated power delegated by the Constitution to the federal government.
Although this is just a small step, Alito and the majority court may be steering the federal government back in the proper direction; one not only required by the Constitution but also by those who wrote it. Alexander Hamilton makes this very clear in Federalist #78:
Indeed, you may search the entire text, you may scour the writings of the drafters of this Constitution, but you will never find an authority delegated to the federal government to regulate such activity. The assumed authority to do so comes from an interpretation of the Commerce Clause, in which the federal government stretches the meaning and application way beyond the “tenor of the commission” of the Constitution. As Madison explained in 1792, during the Cod Fishery debate, the clauses within the Constitution are not powers delegated at all; they are merely explanations of “the purpose of the powers which are delegated.” These clauses were never intended to be boilerplate blank checks written to Congress to create whatever law they could somehow justify. Madison issues a very stern warning against using these clauses for that purpose.
The Department of Homeland Security is seeking bids from contractors to create a database that will monitor and collect information on journalists and bloggers the government designates as “media influencers.” The call for bids first showed up on 
For more details on this program listen to this short clip from The KrisAnne Hall Show: 
It doesn’t take extensive research to discover that the very first man to give his life in our battle for independence was a freed slave by the name of Crispus Attucks. Crispus Attucks not only gave his life so we could be free, but was one of the most honored patriots of this time. The Boston Globe reported that Attucks’ funeral was the most attended funeral in the history of Boston. This armed, freed slave fought for our freedom.
Mr. James Forten the son of free blacks, at 14 years old, heard the public reading the Declaration of Independence in the streets of Philadelphia. Forten then joined the Navy to fight against the British oppression of the American colonists. He was taken captive and given the option of living with a captain of the British Navy as a slave companion of the captain’s son. Forten was told he would have comfort and provision like he had never known in America, if he would only agree to stop fighting and return to his life as a slave in Britain. Forten, as a young man, responded: “I have been taken prisoner for the liberties of my country, and never will prove a traitor to her interest!” He ended up spending 7 months in a British prisonship for his devotion to freedom and liberty. This armed, free black man, fought for our freedom.
Let us not forget Prince Whipple, the freed black man who fought along side General George Washington and is seen in the very famous painting of Washington crossing the frozen Delaware River. These are but just a few examples of the many armed freed slaves who fought for the new America. . Several of our States had a provision, that gave permanent freedom to all slaves wanting to fight for Liberty and independence. This history means there are some free men who gave their only free breath so America could be free and Americans do not even know their names.
“That slow poison…is daily contaminating the minds and morals or our people. Every gentleman here is born a petty tyrant. Practiced in acts of despotism and cruelty, we become callous to the dictates of humanity, and all the finer feelings of the soul. Taught to regard a part of our own species in the most abject and contemptible degree below us, we lose that idea of dignity of man which the hand of nature has implanted in us for great and useful purposes.”
We need a renewed vigor for truth in history in America. We need to learn about the Liberty we possess that so many before us fought to secure. We cannot preserve our freedoms while denying the history that won them. Those who do not know their history are doomed to repeat its mistakes.
Lo que muchos ciudadanos y legisladores no entienden es que el gobierno federal no tiene el derecho de impedir que un ciudadano respetuoso de la ley posea CUALQUIER arma de fuego. Todo el argumento para el control de armas se basa en una premisa falsa. La segunda enmienda no se trata de autodefensa de criminales.
El Sr. Lee explica que es nuestro deber no simplemente portar armas, sino SIEMPRE portar armas. Es probable que el Sr. Lee se revuelva en su tumba ante la idea de que tenemos que pedir permiso al gobierno para portar un arma de fuego. ¿Qué tal esa directiva que también debemos enseñar a nuestros hijos a portar armas?
Un debate apropiado sobre el derecho de uno a tener y portar armas NO es uno que esté enmarcado en términos de si puede sentirse a salvo de las personas malvadas y depravadas, llenas de odio y mallice, que quieren lastimarlo. NUNCA se sentirá seguro de esas personas y esas personas no dejarán de existir solo porque USTED no tiene permitido poseer un arma de fuego legalmente. ¿Por qué? Porque esas personas no se preocupan por las leyes y siempre encontrarán la forma de herir y destruir, con o sin leyes de armas.