I’ve been collecting headlines in recent weeks.
They’ve become plot points in a dot-to-dot drawing of the American economic landscape.
And the picture that’s forming is one of inflation.
I know you’ve heard that word a lot in recent years as the Federal Reserve has flooded the financial system with vats of money — and yet nothing resembling inflation has shown its face.
That’s now beginning to change. And it’s a reason you should initiate — or continue adding to — a position in gold and silver.
Let’s go to the headlines:
(The story of structural shifts in the U.S. labor market that have economists now fearing a near-permanently elevated level of part-time workers who cannot, and likely will not, find full-time employment.)
(One in three adults Americans — 33% of us — have not a dime of emergency savings to fall back on.)
(A massive 79% of us thinks that it’s more likely for Americans to fall into a lower economic class from middle class than it is for a person in the lower class to rise up into the middle class.)
(California lawmakers have legislated another pay raise for minimum wage workers, this time to $13 an hour by 2017, or $27,000 a year to flip hamburgers or run a cash register and such.)
(May inflation rose 0.4%, an annualized rate of 4.8%. It was the largest increase since February 2013.)
Those are not the statistics of a robust economy that is financially sound at its core.
They are statistics that speak explicitly of struggle and post-empire decline.
At the top, the U.S. jobs market is not creating much opportunity. As I’ve written recently, the jobs data going back to the post-crisis peak in 2007 show that our country is replacing high-paying jobs with low-paying menial labor. Sure, the Obama economy is giving us 200,000-plus jobs a month, but they’re largely jobs with no future and limited income.
Which explains why America faces a structural labor-market shift that has created so many unhappy part-timers, and why so many Americans teeter on the edge of ruin.
They have few meaningful job opportunities to pursue … and the jobs that do exist don’t pay enough to live a middle-class life, or to save much for tomorrow.
Which explains why nearly four of every five of us now no longer see Ronald Reagan’s “Morning in America” but, rather, a twilight settling over the America that used to exist. We are no longer the optimistic nation of can-do workers … we are a pessimistic country on the wrong path economically.
And then there’s the minimum wage news and the inflation data…
Higher Minimum Wage = Higher Inflation
Those two might seem strange dots to connect in this drawing. Yet, it all comes together because pessimistic people who have lost high-paying jobs, or cannot find decent-paying jobs and are, instead, stuck in the menial-labor Obama economy.
Thus, the initiative in California to raise the minimum wage — as well as the efforts nationally to push for wages of as much as $15 per hour for jobs that require little to no skill. The minimum wage has been going up all over the country for the last year to 18 months. These wage rises do not happen in a vacuum.
Lifting salaries for the lowest paid workers, out of necessity, demands that wages rise for those employees who are managing the lowest-paid workers … leading, of course, to wage hikes for the second layer of management who wants to maintain an adequate wage gap from those whom they manage. And, thus, begins the wage pressures that have been absent in the American labor market … and, thus, plants the seeds of inflation … which we are beginning to feel.
The Fed Trap
Here’s the problem: The Federal Reserve is in no easy position to raise interest rates.
Sure, we’re near 0%, so we have a lot of head room in front of us. But raising interest rates raises the cost of debt … and we are the single-most indebted nation in the history of indebted nations. Our government owes more than $18 trillion to borrowers, and We the Consumer owe $17 trillion.
Interest rates go up, the cost of servicing the debt goes up. Debt costs rise, the ability of Congress to run the country, and the ability of consumers to spend, goes down. The economy backslides. The job market erodes. Pessimism increases.
Not good. The Fed would have to cut rates again in hopes of stimulating the economy … and we’re back in the same cycle.
And if the Fed doesn’t raise rates, then we move into a stagflationary period like the 1970s, where the cost of living rises but the economy gains no traction.
Now is the time to prepare for the changing seasons of our economy.
The prescription is, as it always is, gold.
It’s the best insurance policy you can own right now. The price is cheap. And the disasters it protects against are clearly in the forecast. That doesn’t mean they will arrive … but their probability isn’t negligible, either. There is a very real risk that the U.S. economy faces a reckoning because of the strains and limitations our debt imposes on us.
Gold will preserve — even grow — your capital in what’s to come for America.
Until next time, stay Sovereign…
Jeff D. Opdyke
Editor, Profit Seeker