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Excerpts: Illusion of Wealth creation

CURRENT SITUATION – The absurd money-creation continues. Slowly yet surely, the “stealth” confiscation of savings is gaining momentum as money loses its value. Central banks claim that they are raising interest-rates to fight inflation. At the same time they are slipping in more rum into the punch bowl, thus creating just what they say they want to fight – inflation! Take a look at the latest year-on-year money supply growth-rates around the world:


Australia + 9.1%
Britain + 11.7%
Canada + 7.7%
Denmark + 14.7%
US + 8.1%
Euro area + 7.3%
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So far, the ongoing inflation has been masked by the bogus core inflation figures released by the authorities. According to the official statistics, inflation is tame and under control. But if you take a look around, you will realise that the cost of living is rising much faster than the officials would have you believe. The cost of energy has gone up six times; the cost of housing is at a record-high in most countries; education is ridiculously expensive and insurance premiums are soaring. And we should believe that inflation is not a problem? If inflation is really not an issue, why has the Federal Reserve decided to stop publishing the money supply (M3) growth rate as of the next month? For sure, the prices of consumer goods (televisions, computers, clothing etc.) have come down in recent years due to vast improvements in technology and the economies of mass production, but the overall cost of living is rising rapidly due to inflation as there is too much money being created.
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There is another crucial point I’d like to make. During highly inflationary times (such as now), the purchasing power of money declines against all asset-classes. In other words, if enough money is printed, despite a horrendous economy, stocks, bonds, property, commodities as well as collectibles may all rise at the same time. Such a rise in asset prices due to high inflation gives the ILLUSION of prosperity. Nothing can be further from the truth however. Hyperinflation almost always leads to a collapse in the inflating country’s currency relative to other major world currencies. Now, if all the countries decide to print money (inflate) at the same time, which seems to be happening now, instead of declining against each other, the various currencies may decline against assets. So as investors, we need to try and figure out which assets are likely to appreciate the most due to inflation.

Puru Saxena
www.purusaxena.com /www. Kitco.com

:) Falkor

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