There is more and more evidence that inflation is created by the government. If we look at Japan and more recently Egypt, we see that countries with a large deficit are more inclined to raise taxes and print money. This is inflation, because the people will not be able to buy the same amount for the same price. The U.S. won't escape from this either. But let's look at Japan first.
Ever since Japan went into a deficit in 2008 (which kept getting worse ever since), inflation has surged. See chart below from tradingeconomics.
Japan's Abenomics is targeting a 2% inflation rate, which they think cannot be reached. Reality though is that the inflation rate in Japan is already far above 3% as we can see from the latest numbers in May 2014. Look at the chart below from tradingeconomics. The target has already been reached in spades. Still, the Japanese government tries to hide these numbers from the media.
To add insult to injury, Japan is even increasing consumption taxes by 3% in April 2014 while knowing that the inflation rate is going out of hand. Japan keeps printing money by expanding its balance sheet (see green chart below from St. Louis Fed).
So to summarize here, we see that high deficits and high debt levels are the incentives for the government to create inflation.
Now take Egypt for example. Electricity prices are said to double in 5 years. Gasoline prices just doubled overnight. This is because the government wanted to reduce its budget deficit. We know that budget deficits are correlated to the trade deficit, so let's take that chart up.
As you can see, the deficit started in the financial crisis of 2008 and hasn't improved ever since. So the government is taking extreme measures now.
This is the result. I get stress already when the pumps are all occupied. I wouldn't want to experience this.:
Now finally take a look at the United States itself. Inflation will only get worse as in this country too, the deficits are getting out of hand.
As you can see from the chart below, 2014 started with a bang to the downside. The trade deficit widened considerably to $45 billion/month and the signs of inflation are here.
First, we see that capacity utilization has reached a record high of 79.1% in May (See chart below from St. Louis Fed), so I expect that inflation will roar back to at least 3% in the coming months.
Second, in the last FOMC meeting, Janet Yellen didn't even mention that the 2% inflation target was reached, which was the highest number in 2014. The result was that interest rates would stay low for a longer time frame. As I said, governments try to hide inflation numbers.
Third, during the month of June, the labor force participation rate reached a low of 62.8. Especially young people can't get into the labor force, while old people need to stay in the labor force to be able to afford living. That's why the labor force participation rate for people older than 55 kept increasing, while the labor force participation rate for people younger than 55 kept decreasing (while they stay at home with their parents). Young people can't get a job and old people get to work longer. That's another effect of inflation.
Fourth, the worst number we saw this week was the increase in part time jobs and the decrease of full time jobs in June 2014 of which I talked about here. This is a first sign that a recession is about to come and it's a sign that Obamacare is having its effects as employers are being punished when they take in full time workers. It also explains why the jobs numbers this week were so good, because these were all part time jobs.
And to conclude, we see these signs of rising prices in our daily lives. Gold (NYSEARCA:GLD) is forming a base, gasoline prices are hitting new highs. So investors should protect themselves against inflation and taxes. The only way to do that is to buy precious metals. You can't even store your wealth out of the United States anymore as the US Foreign Account Tax Compliance Act (FATCA) came into effect this week, which prevents tax evasion.
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