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New numbers out

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Friday May 17, 2013
Real Economic Indicators

We'll begin this morning at our roots - long wave economics - and remind you that we're still in an economic depression, which is characterized by massive deflation, although it's being cleverly hidden from sight by simply printing up gobs and oodles of cash money and bailing out banks so they won't dump foreclosed property on the market and precipitate the second major leg down since 2007 which may come along on its own.

While you may have heard that cash is going out of style and everything is now done with plastic? That's not the case, apparently since the Federal Reserve has been printing up M1 at a non-seasonally adjusted rate of increase of 11.86%. The broader measure, M2 (which includes a few time deposits) is up 6.9%.

Although the Fed is apparently too embarrassed to print M3 anymore, my friend Trader Bart dutifully tracks it and it's going up about at the rate of 7½ percent annualized, plus or minus a fudge sundae.

Since we reported that prices fell in the Consumer Price report Thursday down 0.4%, that implies that the real rate of deflation is running about 7.9% annualized right now.

That's why, despite the frantic hand-wringing of the gold bugs, the price of gold has dropped from around $1,500 down to the $1,375 range. But that's OK, since I figure its a fine buying opportunity which could get even better the closer gold gets to $800.

Eventually, the bond market rates will begin to climb, though not for a year or longer, perhaps, but when it does then gold and anything else of value will head skyward when inflation returns.

At a macro econ level there's been a historical shift: Republicans used to be (once upon a time) the party of thrift and balanced budgets. But the democrats have really been doing a better job of it. In a sense, we're watching conservative socialists on one side versus the socialist conservatives on the other.

If you're feeling confused by it all, well, that's the New Normal.

One reader asked me to comment on the CNBC "Death Cross" story about how bond rates could dip below one percent.

Likely? Let me give you an unqualified maybe on it. Here's why: The Fed can print money all day long. The problem they have is how to get it into circulation. That's why a huge natural disaster in the period just ahead might actually be a good thing in economic terms. Oh, sure, a billion dead is bad (especially if you happen to be among them). But think how it would give a cover to the high crimes and misdemeanors crowd!

There's actually an incentive to cause it, if they could...blame shifting.

"Give a man a gun, and he could rob a bank. Give a man a bank, and he could rob the world."