Inflation Just Hit 9.1%, and If You’re Under Age 60 You’ve Never Seen Anything Like This
BYRON W. KING, CONTRIBUTING EDITOR Lifetime Income Report
Dear
Reader:
Here’s a recent news lead from none other than the Washington Post: “Prices soared by 9.1 percent in June, compared with a year ago, a new peak with inflation remaining at 40-year highs, driven in large part by higher energy prices.”
Well, it’s nice to know that people in D.C. are learning how the rest of us live out in the hinterlands. The Post was even nice enough to include a historical chart of inflation dating back over 50 years:
With this in mind, it’s worth asking how old you are. Are you over or under about age 60?
I’m not trying to be snarky. But I want to address a point about age and experience. Because right now, whether you lived through it or not, you need to recall some history. What’s happening with inflation (see the chart above) reminds me of the 1970s, and not in a good way.
To some people, the 1970s are ancient times, just tall tales of the olden days. Nixon and Watergate… Ending the Vietnam War… Disco… The Pittsburgh Steelers won four Super Bowls (hey, that 1980 win was for the 1979 season).
So I understand why people might not want to ponder what happened in some distant decade. It’s all water under the bridge, so to speak.
But if you were around back then — let’s say you were above age 12 or so in the early 1970s — you will recall what went down. And it wasn’t pretty. Which is why I say that if you’re over age 60, then you’ve seen something like this before.
And if you’re under 60? Well, you may have heard stories and read about what happened. But that’s different, compared with being a teenager or young adult living through the mess.
The key takeaway of the 1970s is painfully obvious. It was a decade that began with the destabilization of the dollar when President Nixon “closed the gold window” on Aug. 15, 1971. And this led directly to fast-rising costs for energy, with serious, economy-busting disruptions in energy supply right behind.
And as we look around today, in terms of both monetary and energy issues, it’s the 1970s redux. We see different (meaning bigger) numbers today, in terms of the price tags on things, and how fast the dollar is losing purchasing power. But the principle is the same.
Consider a few items that touch your life all the time, like the rising price of gasoline and diesel fuel. And the rising cost of electric power, especially during those “peak pricing” hours. Or the rising cost of natural gas or propane to heat your home. This is inflation knocking at your front door, right?
Indeed, much of the past year has been a period of energy sticker shock. Prices rose for oil, and all downstream products ranging from gasoline to motor oil. And so far, it’s “only” a mere double in the price of motor fuel. (Yes, it was much worse in the 1970s.)
Or consider your monthly utility bills, with stiff price runups for natural gas and electric power at the meter. Just this alone is breaking the bank for many households and businesses, across the country and the world.
Buy gas for the car, pay the light bill, and put some groceries on the table. And guess what? A large number of American households are busted out before the end of the month. No wonder Netflix and HBO are losing subscribers, and companies like Amazon and Target are having warehouse sales. People are cutting back and not buying what they can no longer afford.
Looking ahead, it can — and likely will — get much worse.
Let’s go back to that government number for inflation at 9.1%. And that’s a number with all the fudging and massaging that the federal bureaucrats use. A good friend of mine who runs a large industrial concern told me recently that his internal rate of inflation for his company is over 30%, what with energy, concrete, steel, supplies, wages and more.
Fundamentally, the inflation number points back to a deep-seated U.S. monetary problem. In essence, the dollar is breaking down as a store of long-term value. At the very best, your $100 bill from a year ago is worth only $91 today. For my friend and his business, that $100 from last year is worth $70 anymore.
And right out of the gate, this newly rising inflation affects energy, which in turn affects everything else. Just consider rising costs for all the products and services that rely on just those foregoing energy sources.
It costs more to run a farm tractor or operate an over the road truck, so it costs more to grow and process food, and haul it to the store. It costs more to run the store, from lighting to keeping the coolers working at the supermarket. So you see price increases, right? And empty shelves.
It costs more to fuel an airliner, so ticket prices are rising. Perhaps you’ve noticed?
It costs more to buy feedstock for petrochemicals, so the price of everything made with hydrocarbon is going up — from ag fertilizer, to the clothes on your back, to roofing materials, to the PVC pipe you need to fix the plumbing.
You know all of this, right? We could discuss the angles all day. But let’s keep our eye on the ball. The fact is that running modern civilization requires keeping a stable money system, coupled with access to affordable energy.
When you think about it, countries that have good money and ample energy do well. Those without good money or energy, on the other hand, do poorly.
Let’s consider a little bit of U.S. history. Economically, the country has done well for over 150 years because, collectively, the country usually (not always) had a strong dollar. And with predictable money — meaning you could invest it for the long haul — people exploited energy resources.
America today is a wealthy place because there has long been ample energy to do things, make things and get things done. Think about how coal helped build the country. Then oil and natural gas. Then hydropower in suitable places like the Columbia River, Colorado River, Tennessee Valley region and many more. And eventually the U.S. pioneered nuclear fuel for generating electric power.
Absent all this coal-oil-gas-hydro-nuclear energy, the U.S. of the past century and a half would not exist. The world would still be here, to be sure; after all, we’re talking about an entire planet beneath our feet. But on the surface, it would be a very different world, organized a very different way, and none of us would be here.
Absent good money and ample energy, the U.S. would have created no steel industry, no rail lines or trains, no vast industrialization, no large amounts of machinery — especially farm equipment — no transportation system of roads and bridges, no autos and trucks, no big cities, no electric power to light it all up, no anything.
When the money works, and energy is available and affordable, America does well. With good money and energy, the U.S. has industry, jobs, innovation and inventions. There’s food on the table. People can move around. There’s a decent life to be had.
Also when money and energy are available, and even if the situation is grim, the country can stretch to great accomplishments. Consider World War II, way back in the distant world of your parents or grandparents depending on your age.
Imagine if the U.S. had been hard-up for money and energy in 1939 or 1940, let alone in the next five years. Well, no steel, no aluminum, no airplanes, no ships, tanks, ammunition and much more. In other words, the so-called “arsenal of democracy” of World War II had a strong dollar, as well as a light switch that was definitely in the “ON” position back in those days.
People write books about monetary and energy history, and I could go on with just this theme. But really, the last couple of paragraphs were meant to lay the foundation for why, in terms of money and energy, it’s about to be the 1970s again, if not worse.
Here are a couple of basics from the 1970s: When the decade began the posted price for a barrel of oil was $2.96, just shy of three dollars. You could buy gasoline for about $0.30 per gallon, and most of that pump price was tax.
But by 1980, just 10 years later, the price of a barrel of oil was $35.63.
That is, in those 10 years of the 1970s, we had a 12-fold increase in the price of oil, for a substance that is absolutely critical to how society functions, whether the U.S. or any other nation on earth.
Meanwhile, the 1970s were an era of monetary expansion, and related inflation in everything from energy (of course) to real estate to every kind of item. Prices went up-up-up at the store, and so did the cost of services and much more.
Economist Milton Friedman once noted that, “inflation is always and everywhere a monetary phenomenon.” Yes, blame the Fed. Blame government overspending.
But let’s stay more rooted in reality here. The big inflation hit of the early 1970s appeared, like a rabid dog in your backyard, in the form of energy price increases.
A large whack of the 1970s-era oil price increase came in 1973-74, based on the Arab/OPEC oil boycott of the U.S., when oil soared from $3.00 to over $12.00, a quadruple move that helped wreck the U.S. economy and gave the country a three-year recession in mid-decade.
The next big price move came in 1979-80, via the Iran Revolution, when oil shot up from the mid-teens to about $36.00 per barrel. It was easily more than a double move (and just shy a triple, depending on where you want to set the baseline).
Again, with those late-70s oil price increases, fuel prices skyrocketed and the country took a major economic hit.
So now, with that in mind, let’s return to recent years. From 2014 through 2019, oil prices traded in a range of about $40 per barrel to $65 or so, depending on global events.
As recently as 2020, oil prices were under $40 per barrel, but that was a Covid thing. Last year, in 2021, oil prices closed out at $75 per barrel.
And that brings us to 2022, when prices have soared as high as $123 per barrel.
Yes, oil prices move up and down. They fluctuate depending on market conditions and news flow. While in the background we have forecasters, from the likes of Goldman Sachs and Bank of America, predicting future oil prices in the range of $200 per barrel, up to $300 and even more. Which makes you say, “Whoa!”
Right away, at $200 let alone $300, there’s your 1970s-style energy price triple, or call it a quadruple and more from recent years.
And the fact is that inflation — in dollars and rising energy price — is the key prompt for another serious recession, if not a new depression.
Dire predictions, yes. So, will all of this come to pass? Not all at once, I suspect.
First, just based on the price increases that comprise that 9.1% government number, we’re likely already in a recession; it just hasn’t yet been announced by the government mouthpieces.
At the same time, a recession will reduce demand and take some of the upward pressures off of pricing, at least a while. For example, gasoline prices are fading slightly, although still way up from last year or two years ago. And thus will the U.S. avoid its monetary moment of reckoning, put off to another day.
But if inflation persists, and especially if energy prices keep on rising, the associated sticker shocks will give the global economy a stroke; and certainly the U.S. will take a major hit.
How can you prepare?
Well, it helps to own a few oil wells. If not, you want to be invested in companies that tend to hold their own during recessions; businesses like consumer staples, as well as energy and some mining plays. Preferably, the companies pay out a dividend.
And we’ll continue to discuss what’s happening here at Lifetime Income Report and in our other affiliated publications. The research and recommendations are first-class.
But the critical thing to understand is that finally, here in 2022, the politicians and policymakers have done that time travel trick; they have brought us from the 2020s back to the 1970s.
And I’m telling you, because I was there, that we’re going to have to work very hard to stay ahead of the mess.
That’s all for now. Thanks for reading.
Best wishes…
Byron W. King
A note from Joe Dorner
We lived through it, we survived it.
We learned to thrive in it.
Are you prepared?
If not, you should be scared.
In the 1800s, Baron Rothschild said “The time to buy is when there’s blood in the streets.” he obviously believed it, shortly after saying that, he and his brothers began financing the Napoleonic Wars.
Financing both sides of the war to hedge their bet.
The family got filthy rich, the kind of wealth that lives on for generations.
Forbes recently reported the Rothschild family is worth half a trillion dollars.
Buying when there’s blood in the streets works.
In 2008, there was blood in the streets - and some of our Associates & Clients made a fortune because they were prepared.
In 2022 with inflation the way it is there’s about to be blood in the streets again
I don’t like it, but it can’t be stopped so it's time to help families that are in trouble and do more deals. We earn money helping people and when we buy & resell.
The Fed has screwed things up so bad there’s no turning back now
We’re headed for a deep recession, perhaps worse.
There’s about to be a lot more blood in the streets. Here’s what you can do;
You keep an eye out for assets you can get at a discount or families in trouble that one of our Programs can help solve.
Maybe a good deal on a single family home, or a family that needs help to save their home.
Maybe a business you can pick up cheap from a retiring owner that has s a cash flow producing business.
Maybe a large apartment building.
We can help you leverage those opportunities & more
If you’re just starting out, you can even find stuff that people are selling cheap, then turn around and flip that to someone else for a profit. You'd be surprised what you can find and how much you can earn from reselling your finds.
Do that enough and it gives you some seed money to acquire bigger assets.
Making money is easy when times are good. Making money is even easier when times are bad.
So, get prepared - the deals are coming and more and more people need help.
Here are 3 Resources that can help: https://anchoraa.evsuite.com/3Resources
We're about to enter one of the biggest wealth transfers in history, you can be a spectator or we can help you be a participant if you're on the inside.
Joe Dorner
