US productivity numbers for the first quarter of this year were disappointing, to say the least. Analysts expected Q1 productivity to rise by point 0.7%. Instead, it came in at nearly half that, rising by 0.4%. This was only a slight improvement over the 0.3% increase in the final quarter of 2017.
There wasn't a whole lot of chatter about sluggish productivity in the mainstream financial press, but in his recent podcast, Peter Schiff pointed out that it could have significant ramifications for the economy - and on your pocketbook. If you're counting on productivity to keep a lid on consumer prices, you have a big problem.
That is the only way to keep prices from rising when you're creating all of this money is to have an increase in productivity."
As Peter pointed out, rising productivity doesn't prevent inflation. It merely masks it. Most Americans don't understand what inflation actually is. In fact, the mainstream has effectively redefined the term, as Ron Paul explained during an episode of his Liberty Report. Peter provided a succinct explanation of inflation during his podcast.
Remember, a lot of people think that inflation is what happens to prices. It's not. Inflation is what happens to money. That's where the word comes from. Inflate means to expand and prices don't expand. Prices go up, prices go down. What expands? The money supply. It expands during inflation, it contracts during deflation. A result of an expansion of the money supply inflation is that prices tend to rise. But they might not rise. If productivity is rising faster, prices might not go up at all."
So, even if increasing productivity keeps prices from rising as fast as they would during an inflationary period, it still harms consumers because they could have benefited from even lower prices.
If inflation robs you from the benefit of increased productivity, that's still an inflation tax. This is still harming the economy. But the modern day bankers and Wall Street - everybody - they're only worried about inflation if it makes prices go up, not if it prevents them from going down, although now they actually want inflation to make prices go up. They just don't want inflation to make prices go up too much. In fact, if inflation doesn't make prices go up enough, that is supposedly a problem, right? Inflation is too low. That's what's been fueling a lot of the monetary policy."
So, the sagging productivity numbers are actually inflationary news.
The natural tendency in a free market is for prices to fall. When businesses become more productive, they produce more stuff using fewer resources. As the cost of production falls, businesses can sell stuff at lower prices and still maintain the same profit margin, and possibly even increase it. When you lower prices, you increase volume. This is basic supply and demand economics.
So, the whole idea that businesses need rising prices to generate profits is just pure nonsense. I mean, that's part of the propaganda the central bankers are using to justify creating inflation. And the fact that we got these weak Q1 productivity numbers is just an indication we're going to start to see consumer prices rising much faster."
Of course, rising prices - or inflation, as the mainstream defines it - is good news for gold.
The mainstream pundits will try to tell you rising inflation is bad for gold because that means the central banks will raise interest rates faster. But keep in mind, an interest rate is nothing but a price. It's the price of money. When there is inflation, interest rates go up just like any other price. Contrary to popular belief, this is not bad for gold. Quite the opposite. This is all bullish for gold. Gold is an inflation hedge. That's what it's for!