The F.E.D. Index and Price Increases

Miles Franklin sponsored this article by Gary Christenson. The opinions are his and are not investment advice.

For the week ending October 2, 2020:

Gold rose $50 to $1,907.

Silver rose $0.93 to $24.03

The NASDAQ 100 Index rose 104 to 11,255.

Politicians… yada yada yada.

The Federal Reserve has two mandates: a stable dollar and low unemployment. They are doing a miserable job with both.

a). The dollar is not stable. Look at price changes between 1970 and 2020. Trucks are up from $3,000 to $60,000. Postage changed from 6 cents to 55 cents, silver (COMEX) rose from $1.63 to $24 (and soon much higher), food prices are up substantially… and the list continues.

b). Nearly one million people applied for unemployment last week. Many millions are out of work. Even more will be laid off in coming months. Employment is weak. Jobs are disappearing. Desperation… Fed dollars won’t fix these problems.

But Fed employees are doing an outstanding job devaluing the dollar, transferring wealth from the many to the few, and paying themselves large salaries.

From Peak Prosperity:

“Under this regime, the rich benefit disproportionately at the expense of everyone else AND it creates a hyperinflation in the cost of retirement. This accelerating war on the 99% cannot stand much longer without serious consequences and repercussions.”

Ask any congressperson if he/she thinks the Fed will stabilize the dollar’s purchasing power, support a balanced budget, cease monetizing debt, prudently manage the supply of currency… and so on. Obviously not.

From Sven Henrich:

“Do you really think it’s an accident that the only people placed in charge of the country’s monetary policies are doves? People of the perma intervention kind. It is after all the same Congress comprised of these very two parties that approves all the nominations. Bernanke was a dove. Yellen was a dove, Powell now the perma-dove with interest rates at zero forever and ever amen.

Ask any congressperson if he/she thinks the U.S. government will balance its budget, reduce the national debt, and wisely manage the economy.  Obviously not.

The debt-based currency system will persist until it collapses, which might be years or decades. National debt will increase because politicians spend dollars… forever, or until something breaks.

From Alasdair Macleod:

“… the purchasing power of the dollar is hostage to foreign sellers, and that if the Fed continues with current monetary policies the dollar will follow the same fate as John Law’s livre in 1720.”

The Consumer Price Index (CPI) supposedly measures the declining purchasing power of the dollar. We pretend it’s real because it’s official, even though every shopper knows it under-reports consumer price inflation and dollar devaluation.

In short, the CIP is good for slowing the increase in Social Security Payments (CPI indexed) and making government policies look better than they are.

LET’S CREATE A NEW INDEX TO MEASURE DEVALUATION OF THE DOLLAR:

• Keep it simple.
• Make it easy to calculate.
• Base it on 50 years of history.

We’ll call it the F.E.D. Index where “F.E.D.” stands for Fiat Enduring Devaluation. Alternates are Fiat’s Embarrassing Devaluation, and Fiat Endorsed Devaluation.

You see the idea. The Fed and banking cartel create dollars and make existing dollars less valuable. The government creates an agency to track price increases, but often modifies the methodology to pretend consumer price inflation is less nasty, particularly in election years.

Another viewpoint is the F.E.D. Index:

Track the monthly closing prices for the S&P 500 Index and the monthly closing prices for gold bullion on the COMEX. Weigh gold at 1.5 times the S&P (historical average) and add them together. That sum creates an index.

OBSERVATIONS:

The F.E.D. Index rises exponentially and peaks when either the S&P or gold peaks.

The F.E.D. Index has stayed within a log trend channel since the mid-1980s – about 35 years.

The log-scale graph shows that the F.E.D. Index rises logarithmically at about 5.6% per year since the mid-1970s. The Index burst through the trend channel in 1980 when gold bubbled higher. It could happen again.

Approximate Index values are:

Date                    Index     Ratio to 1970

1970                       150         1.0

2000                    1,500         10.0

2010                    3,000         20.0

2020                    6,500         43.0

Example Price Increases – Estimates:

• A new truck costs about 20 times as much in 2020 as in 1970.

• A McDonald’s burger increased in price from $0.55 to $4.00, up a factor of 7, but it’s smaller.

• Cigarettes cost $0.35 per pack in 1970. Today they cost $8.00 per pack, depending on the state. They are up a factor of 22 since 1970.

• A silver dollar from 1921 cost about $1.50 in 1970. Today it costs about $38, up a factor of 25. Higher silver prices lie ahead.

• College Tuition for an expensive college was $3,500 per year. Today it is at least $70,000, up a factor of 20 or more.

• The DOW was 750 in 1970. Today it is 27,600, up a factor of 37.

• U.S. government expenses in 1970 were less than $200 billion. In 2020 they exceeded $6,000 billion (in 11 months), up by a factor of about 35.

• Medical care, prescription drugs, and hospitalization expenses are up an estimated factor of 50 to 150 compared to 1970.

• However, the CPI estimates that prices are only 6.9 times higher than in 1970. The CPI underestimates actual costs for food, utilities, housing, medical care, and many other expenses.

SUMMARY:

Don’t trust the CPI, which understates the real price inflation most families experience, and use the F.E.D. Index or Chapwood Index to determine the increase in prices.

THIS BEGS THE QUESTION. Is gold inexpensive compared to the S&P 500 Index?

Examine the chart of gold (multiplied by 1.5) compared to the total F.E.D. index over the past 50 years. You can see:

1. Gold (and commodities) was too expensive in 1980.
2. Gold (and commodities) was inexpensive in 2000.
3. Gold (and commodities) remains underpriced in 2020.

Gold (and commodities) prices will rise more rapidly than the S&P 500 Index. The S&P is too high in October 2020 (election year politics and Fed “printing”) and will fall, probably after the election. Don’t expect the “Powers-That-Be” to encourage gold purchases.

Read: Hemke: “Bullion Bank Criminal Corruption”

Based on the reduction in the dollar’s purchasing power by the Fed and the government, and rapidly rising debt, the price of gold must increase in the next several years.

Assume: The index rises 5.6% per year or more. Gold will rise while the S&P will fall. What is not speculation is that the dollar will devalue, debt is rising uncontrollably, and the Fed is desperate to appear in control while they continue to pump money from the many to the few.

The following is speculation. Assume the S&P corrects lower for several years and gold and other commodities surge higher as they did in the 1970s.

Gold Conservative Case

Year                     Gold         S&P 500    Index (1.5 gold + S&P)

2020                    2,000         3,500         6,500

2021                    2,900         2,500         6,864

2022                    3,500         2,000         7,248

2023                    3,400         2,500         7,654

2024                    3,600         2,700         8,083

2025                    3,600         3,200         8,536

Gold Less-Conservative Case (Speculation)

Year                     Gold         S&P 500    Index

2020                    2,000         3,500         6,500

2021                    3,070         2,500         7,100

2022                    4,270         1,500         7,900

2023                    4,530         2,000         8,800

2024                    4,870         2,500         9,800

2025                    5,300         3,000         11,000

CONCLUSIONS:

• The CPI does not represent the actual cost-of-living increases for most families. It does slow the rise of Social Security and pension plan “cost-of-living” adjustments.

• The F.E.D. (Fiat Enduring Devaluation) Index is a calculation over 50 years that shows the increased costs for financial assets and many consumer items. A few were listed above.

• The Federal Reserve is desperate, as is the government. Keep those bubbles inflated and the liquidity flowing. Inflate or die. Monetize that debt, damn the consequences, and “full steam ahead” until after the election. But fake money cannot fix real problems!

• What pandemic? People are unemployed, and businesses are closing, but the Fed is printing and will make it all better! Nonsense!

• Gold prices will rise more rapidly for several years than the S&P 500 Index.

• Gold prices spiked higher in 1980. Now, 40+ years later, gold prices could bubble higher again, as people lose confidence in the dollar, as the Fed desperately “prints” dollars, as congress pushes for more spending, social programs, payoffs, and wars.

• Be wary of high-flying stocks that have risen too high, too fast.

• If gold spikes higher by 100% (for example) then silver prices could rise by 200% or 300%.

• Buy gold. Buy silver.

Miles Franklin sells gold and silver. The dollar was worth 1/40^th of an ounce of gold fifty years ago. What will a dollar be worth, measured in gold, in another 50 years? Call 1-800-822-8080.

Gary Christenson