Money for Me, Inflation for Thee

“The Berenstain Bears” was the name of a popular children’s genre of books and television series that used a family of bears (Papa bear, Mama bear, and Baby bear) to teach children moral lessons of one kind or another, from the 1960’s to the early 2000’s.  The authors found great success, selling over 240 million books by 2003, with 35 books making the Publisher’s Weekly top titles of all time.  But the bears began to fall out of favor when societal pressures challenged the idea of a “papa and mama” traditional family structure.  In similar fashion, gold and silver have protected families from the ravages of inflation for thousands of years.  But like the Berenstain Bears, sometimes societal pressures have pushed gold and silver out of public consciousness.  Today, many are rediscovering why owning gold and silver is important to our financial futures.

In his recent speech this week, Federal Reserve Chairman Jerome Powell iterated time and again that one of the policy goals of the FED was to lower inflation by slowing wage increases for many Americans.  Mind you, part of the reason we have inflation is the massive “wage increases” given to the banking industry through the years in the form of QE (quantitative easing) and various bank bailouts received during the last decade.  Implied in the messaging is that it is ok for the FED to give massive amounts of money to the wealthy banking industry to create and stoke inflation.   But it is considered unacceptable for the masses to receive more money in the form of higher wages, to help mitigate the damage to themselves caused by the FED-induced inflation.  

“Demand Destruction” is a phrase commonly used to describe the process whereby inflation is “tamed” by making sure people don’t have enough money to buy what they need and want.  Demand Destruction sounds banal, compared to using a phrase like “putting average Americans in a precarious financial position whereby they can barely pay their bills”.  But that’s what “Demand Destruction” is.  In short, it is code for “Destruction of Lower and Middle Class American Finances”.  Not to leave the wealthy untouched, growth in the luxury sector is expected to slow dramatically next year due to inflation.  But there is a large disparity between “growth slowing” in the luxury goods market, and “life slowing” for millions of Americans struggling to pay $6.59 for a dozen eggs or a gallon of milk.  That is what one of my clients told me they paid yesterday at the local grocery store; perhaps you are seeing similar things where you live and shop.

This is where gold and silver can play a role to save the day.  Many American retirees are looking forward to receiving the highest COLA adjustment to their pensions in over 40 years.  But the extra 8.7% increase they will start seeing in their checks next month won’t help cover the ongoing 7.1% inflation in effect today.  COLA adjustments are backward-looking, in that they are based on inflation that has already occurred.  The COLA determined at the end of September this year, won’t be received until January of next year.  By then, 3 months of additional price increases will have already occurred.  More price increases are likely over the course of 2023, and retirees won’t see another COLA increase until January 2024.  This is part of the reason why owning gold and silver often provides greater inflation protections than COLA provisions have through the years.

It has been awhile since gold and silver were issued as part of the money supply here in the United States.  The last time silver quarters were used was 1964, when the Minimum Wage was $1.25 an hour.  Like the COLA, Minimum Wage is another mechanism created to help consumers deal with inflation.  Also like the COLA, Minimum Wage has not been as successful as gold and silver at offering inflation protection to average Americans.  With many still fighting for the Minimum Wage to rise to $15.00 per hour nationwide, it would be better to have Minimum Wage at $1.25, paid in 5 silver quarters.  The silver content in those quarters equals about 1.1 ounces.  Even melt value would be worth around $26 today.  In other words, an hour’s worth of Minimum Wage work paid in silver 48 years ago, is worth almost double what an hour of Minimum Wage work will buy today, when paid in dollars.

Another sector of the economy wreaking havoc on the finances of many is in the realm of real estate.  Residential real estate is coming down in value in many areas, with recent home buyers in many markets underwater on mortgages already.  But this is only the latest in a series of problems for the sector.  As people lost homes during the Great Financial Crisis, many properties were scooped up by large investment firms.  These firms then began raising rental rates for those seeking housing, while also bundling and securitizing these real estate investments to sell to other investors in the marketplace.  Pension funds were among the largest buyers of real estate securities, and those funds are now at great risk of loss.  Ironically, many struggling to pay rent in these properties might also have to help bail out the pension fund owners, if the federal government widens the pension bailout scheme further.

Add to this the trend in corporate America to require more employees to return to the office, which some believe is more related to commercial real estate values than worker productivity.  With occupancy rates down to 65% (from 95% pre-pandemic), commercial real estate portfolios are being decimated at the same time that financing is up for renewal.  Owning unproductive real estate when interest rates are low is one thing.  But with rates on the rise, property foreclosures won’t be far behind.  Returning people to the office might not be enough to salvage some of these property deals.

In the meantime, Americans still have to navigate the minefields that exist in the American economy today.  Higher enduring inflation, higher interest rates that make everything more expensive, higher taxes to pay for the higher interest rates, and a Federal Reserve intent on slowing down wage increases, all spell trouble for the American consumer these days.  Like the Berenstain Bears of old, that might be useful in bringing back some normalcy and stability to childhood, gold and silver stand ready to bring back some normalcy and stability to our finances.