Inflation – Why Is Wall Street So Worried?

 BB King “Inflation Blues”: Hey mister president, and you Congressmen too you have got me all frustrated and I don’t know what to do. Trying to make a dollar can’t even save a cent, takes all of my money just to eat and pay my rent that is why I have the Blues. Yes, it’s those inflation Blues.

David J. Scranton: We have all experienced them, those old inflation Blues, but the question is are they about to make a comeback and stall our economic progress and is that why Wall Street is so worried and of the stock market so volatile these days as the media claims. Is this a part of a natural economic cycle, or is it something more, let’s say artificial going on, but guess what it is time to tune out the hype and focus on the facts. Facts that matter to you the income generation.

David J. Scranton: Let’s face it, inflation is a double-edged sword. On one hand, it can be a positive sign of economic growth, but too much inflation too soon can stall economic momentum and possibly reverse it. According, to a lot of media pundits that is a big part of why the stock market is suddenly so volatile, fear that rising interest rates are a sign of inflation and of an overheating economy. But, you know as usual the media has it wrong so on today’s show we are going to tell you exactly what is going on for real. Our Guest today will be Kelsey Williams author of the new book “Inflation- what it is, what it isn’t, and who’s responsible for it and we will also be getting some insight from Kevin Massengill who is the founder and CEO of the market analytics company, Meraglim Holdings.

To clear up some misconceptions about inflation. The Great Depression of the 1930s changed America in a lot of fundamental ways, and one of those changes has to do with inflation see prior to the Great Depression in fact inflation was not considered inevitable nor was the idea nor was our country to constantly carry debt. Before the depression, when we got into debt during a recession we pay off our debts when times were good again. As a country, we are kind of sort of like a well responsible credit card holder but it was during the Depression that we started accumulator permanent National debt and not surprisingly it is also when we fell into the habit of permanently trying to artificially manipulate our economy by manufacturing growth and Manufacturing inflation. All the economic textbook says that when you print money you create inflation, walk why? Because it is assumed that consumers will spend that additional money that is in circulation thereby creating demand for goods and services and pushing and prices upward. Remember the textbook definition for inflation is too much money chasing too few goods and services. What the textbook doesn’t consider is this, what happens if the consumers don’t spend that money to artificially pump into the economy, well we are seeing the answer to that question right now. Ever since the financial crisis the Federal Reserve government blessing have been manipulating the interest rate trying to stimulate the economic manipulate inflation. That is what Quantitative Reasoning was all about, all three rounds starting as far back as 2008. Instead of spending that artificial money most Americans saved it and used it to pay down debts and they also invested it that is also why we have seen since 2009 such a large asset recovery, in fact, the asset recovery is much greater than the economic recovery. The artificial money went into assets which is why the stock market hit a new record high while the economy slowly moves forward and fixing stocks. If you think about it it is easy to understand why most Americans didn’t immediately start spending and borrowing again right after the financial crisis, they were gun-shy they were skeptical in the wake of two major Market crashes in less than a decade. But there is another explanation for why they continue to not spend and why they foil the textbook, the Playbook if you will of the Federal Reserve in their efforts to manufacturer inflation, the other explanation is Japan. For over 25 years Japan has been locked in a stagnant economy marked by a low-interest rate and deflation and I will talk more about those factors in comparison economy in just a bit.

You see, the main reason is demographics, as the population aged japan’s Active consumer base dropped dramatically that same thing is happening here right now in United States. Our Generation baby Bloomers born between 1946 and 1964 make up the largest demographic of consumers, the trouble is their price age of consumerism in many ways, they are far more focused on saving than on spending. We are also more savvy about artificial tactics that will make us spend than the government would like to believe the reality is that we consistently artificially expanded economy for more than 30 years and most people our age are aware of it. In fact if you’re like me you might have perhaps even a car diagram from the late 1980s perhaps got a liar loan for your first mortgage which required no income verification because if you put the right amount of money down you could say you made 10 or 20 million dollars a year and you would have gotten that mortgage. Low-interest rate and cheap money have been part of the course of our economy since Ronald Reagan was president. The process of artificially dangling various carrots to entice people to spend has been the common practice for more than three decades now, when you rely on those types of tactics there has to be a Day of Reckoning and we’re seeing that now with our changing demographics, the Baby Boomers don’t want to spend as much and we are also wise to all the tricks designed to make us spend and we are not falling for them any longer. Then, the question becomes how do interest rates factor into this equation, well if allowed to float naturally interest are closely related to inflation, while high inflation can cause interest rates to rise and rising interest rates can be a symptom of inflation, interest rates are not the cause of inflation, inflation as a dog that wags the interest rate tail. Now, enter the feds, most people know the Baseline short-term inflation set by the Federal Reserve which meets eight times a year and during these meetings the rate of inflation place are major in the decision on whether or not increase rates and by how much another factor they have to consider these days in fact ever since the financial crisis is the status of long-term interest rates and those long-term interest rates is determined by the financial Market by the supply and demand is long-term interest rate are too low then the Federal Reserve and cost of from increasing short-term interest rates why because doing so will threaten to create a flat yield curve, as I explained before banks and other lending institutions depends on having yield curve being steep enough. Long-term rates has to be higher than short-term by enough if a margin to make lending money worth their while. Currently the ten year treasury yield it’s just about at 2.9% it has been going up at least half percent since the beginning of the year and in a large part that was because it was barely a percentage point over the current short-term federal funds rate between one  and a quarter and one and a half percent and that was before this recent increase. So, with all those factors in place the question becomes is Wall Street really worried about inflation as the media is saying? To a certain extent yes, but only because they are misinterpreting the relationship between Rising interest rate inflation not understanding the true underlying cause of the recent rise in interest rate, but I also don’t think that the market Magnus that we are seeing right now it’s just about inflation. What street has other worries on its mind and I will talk more about those coming up shortly. Right now it is time to welcome our first guest, this young man Kelsey Williams believe it or not has more than 40 years of experience in financial services including 14 years of a full-time financial advisor, he is the author of a popular blog called Kelsey’s gold facts and he has written articles on inflation, interest rate and the Federal Reserve. His new book is called “inflation; what it is, what it isn’t and who is responsible for it” which makes him the perfect guest for today’s show. Kelsey, welcome.

Kelsey Williams: Well I am glad to be here Dave, thank you very much

David J. Scranton: So what motivated you to write the book at this particular time?

Kelsey Williams: The idea behind the book was something I thought about for quite a while, I have been posting articles for about a year-and-a-half and I assumed at one point I would probably put together something in form of a book and after the first of the year I decided it was time to and I sat down and started putting it together and included in there is material from things I have already written and I expanded on that and that is what happened and it just clicked within a few weeks I had put together a little booklet and I published it.

David J. Scranton: So you started writing the book January of this year or January of last year

Kelsey Williams: Well, I put the book together in January

David J. Scranton: And the reason you were able to do it so quickly, and I thought I was a slow writer for a minute as I wrote two books and it took me six months each but obviously you had some of the father behind it because of some of the blogs that you have done which made it a little quicker. I would at least like to think that is why and that you are not a quicker writer than me. Tell our income generation members what are the most common misconception about inflation that motivated you to write this

Kelsey Williams: I don’t think people explain or define it correctly and I think it is presented to us inaccurately.

David J. Scranton: Okay, what are those inaccurate misconceptions that are explained to us and how do people define it accurately?

Kelsey Williams: Inflation is that debasement of money by the government, that is all it is it happened via there expansion the supply of money and credit, everything that most people refer to as inflation are the effects of inflation and those effects show up over time and this usually in the form of General increases and the level of prices for all products and services. Those are affecting inflation and not inflation itself.

David J. Scranton: That is a good point as most people think inflation is actually the increase of prices when really it is the devaluation of the currency as you need more units of currency to buy particular goods and services. I get that, what do you think is the threat right now in regards to inflation, do you think it is a big of a threat that the media is mentioning or financial system or do you think it is the recent thing that the media is blowing out of proportion

Kelsey Williams: I think it is a talking point but I don’t think the threat of the effects of inflation are nearly as prominent right now I think the bigger concern is the threat of deflation and credit implosion

David J. Scranton: I don’t know if you heard just a few minutes ago I was talking just about that earlier on in the show that I have been worried more about deflation for over a decade as that textbook says that printing money causes inflation as there is so much money chasing after too few goods. Let’s assume that the consumer is going to take all that extra money and buy goods and services but no one ever asked questions of these old textbooks what happens if the printing of that money goes into investment. I want to approach that topic a little bit more right after the break so stays with us everybody will be back with much more from Kelsey Williams.

So once again is inflation the main thing Wall Street is really concerned about these days or is there something else going on. Please consider that after Donald Trump election the rate on the 10 your Government Bond shot up by 8/10 of 1% but the stock market went up and the bond market also went up at the same time and even though the market was not adversely affected in any way buy this interest rate increase. Why? Because was based on something real an emotional shift, as the optimism about the future changed supply and demand Factor of investment, in that sense emotions are indeed a real force in the direction of markets but when long-term interest saw a smaller spike in January of this year and February at a rate of about half percent the stock market and both the bond market were both affected, so what was the difference then in regards to what happened right after the election versus over the last 2 months? The difference was that this time it wasn’t real, investors knew that the spike was being driven not by an emotional shift but once again mainly by the Federal Reserve artificial influence. Late last year the Feds started the process of unwinding quantitative easing, that process includes selling back the more than 2 trillion dollars worth of bonds that it had purchased through three rounds of quantitative selling starting in 2008, United States government is scheduled to issue additionally nearly a trillion dollars in bonds this year compared to 550 million last year, part of the intent is to force long-term interest rate back up by flooding the market with bonds, it will increase the supply of bonds to drive down prices and in turn drive up long-term interest rate as there’s an inverse relationship between bonds and interest rate. Theoretically, the feds want to do that so that they can continue to increase the short-term interest rate the feds want to do this without flattening the old curve, we discussed this earlier they also want to make sure that they have ammunition to lower interest rates again if we sink into another recession which is a possibility we will discuss more later. It will all make sense but you know like in most cases there is another theory why the Federal Reserves is trying to dry up long-term interest rate at this particular time, politics. The fact that the Federal Reserve is fairly liberal and that a lot of its members’are anti-president Trump. If they can force long-term interest rates now they could change the direction of the Financial Market and stop the president’s agenda even before his tax cuts have a chance to really kick in. Now please understand I am not a big conspiracy theorist but if you look at the history of the Federal Reserve you can understand some of the underlined suspicions. Despite what many people believe the Federal Reserve is not a branch of the US Government instead it is an independent entity although it is commissioned by the US government it is actually started by a collective of the nation’s wealthiest Industrialists. It is still owned by descendants of the original founders who have all inherited their shares over time and all have their own financial and political agenda. Whether or not it is political I personally believe this the Federal Reserve would be ineffective in manipulating the economy against Trump as it was in trying to manipulate them in favor of Obama’s agenda during the financial crisis starting in 2008, why? Again, because of all the reasons we discussed earlier because they are still operating under the flawed assumption but American consumers and investors can be manipulated, lowering short-term rate and printing money didn’t trick most of us into spending after the financial crisis and that’s a good thing. I don’t believe that flooding the bond market is going to receive its desired effect either. As I have explained in last week’s show I don’t believe the tenure treasury and its rates may continue to flirt with 3% but maybe slightly over but it will hit a strong resistance level at that point even factoring in the unwinding of quantitative easing and the reason for that is Baby Bloomers are not only past age of consumerism and more focus on saving than spending but also a great number of us is also committed to secure less volatile interest-bearing savings and investment strategies such as those found in the bond market that means that the increased demand for these bonds and bond like instruments can very possibly offset the increased supply keeping long-term interest rate in check no matter how hard the Federal Reserve tries to force them upwards. In fact not only will these factors keep inflation in check, they could as I have said for many years now lead to a deflation to spiral and we’ll talk about that more however that spiral could ultimately lead us down the road segway into the opposite hyperinflation but only if some other economic factors come into play. I believe there may be some other worries on Wall Street mind right now and we will talk about that more coming up in just a bit. Now it is time to welcome back Kelsey Williams. Kelsey what you said was music to my ears before, the concern about deflation, but why are you concerned about that?

Kelsey  Williams: the facts of the inflation was created over the last hundred years by the Federal Reserve is accumulative and  ongoing but it becomes unpredictable and the biggest threat I think, to my way of thinking would be a collapse of the structure and this  is partially due to the fact that we created by a fraction Reserve banking, there is a compounding of the money circulation and the credit by fractional Reserve banking and it is like dominoes tumbling that can very easily lead to an implosion or collapse. I think we saw something similar to that about 10 years ago

David J. Scranton: So part of it you say comes from the belief that the last 80 something years as a country when we started getting into permanent debt as a country and thinking that we could take the word of God and manipulate the economy in every way possible but how much do you think comes from the demographic shift we are going through, the baby boomers aging and spending less?

Kelsey Williams: I don’t really feel that the demographics are as much a factor as the fundamental economics that are being employed by those who can control the supply and demand and I do believe that in terms of investment we have the complication and convolution of investment products with derivatives and CEOs and all of these esoteric products that most people can’t explain or understand and there are claim on the original base or principle money is there that I really cannot be supported

David J. Scranton: So how much do you think this got accelerated though since 2008 since the financial crisis with all the quantitative easing the presidented level of influence?

Kelsey Williams: Almost infinitely more so because they employ the same tools that brought us to the point that we were facing in 2007, 2008. Nothing change fundamentally and a part of it is because no one wants to pay the piper, nobody wants to see the economic crash and nobody wants to see the economy crash let alone depression and that is reasonable because you have to eventually pay the piper and at some point in time we will.

David J. Scranton: You know, in this go around the Federal Reserve has been manufacturing inflation since 2008 just got a little tiny bit of traction with it, you think they’re going to get more traction, you think we will see 3% or you think we’re going to be stuck in the twos’ as we have been in.

Kelsey Williams: I think it is always possible to see more because it has an unpredictability to this whole thing, but I think the Fed is very much afraid of doing something that will cause us to go under reverse again. I think that that is a bigger concern to them than whether they will create more inflation or not.

David J. Scranton: I think we ask in a nutshell that we are going to see more dovish language coming out than the slightly hawkish language coming out from the new federal president

Kelsey Williams: Possibly so, I think one of the problems here is that the Federal Reserve is going to tell us whatever they think is going to work in their own best interest in terms of keeping this under control because they think they can manage the economic side

David J. Scranton: We need to leave it there for this segment we’re going to take a commercial break stay with us we’ll be right back more words of wisdom from our good friend Kelsey Williams.

So exactly what is it then that cause the media to cease on the idea that inflation fears were at the root of the stock market sudden volatility. Well, it is partly their misunderstanding of the relationship between inflation and the rising interest rate that we discussed previously and it was also the fact that volatility picked up with that historic 10% Plunge early February right after the release of the Department of Labor report about wage growth. It said of the average hourly earnings for American workers rose by 2.9% in the year January 2017 and January 2018, the high inflation increase since before the financial crisis. Combined with low unemployment that seemed to suggest is that the economy could be a real concern for the coming year, and you know it could be but in my expert opinion based on all of the reasons we have discussed so far I really don’t think it will be. What’s more, I believe there is a greater risk threatening of the economy right now that Wall Street is unaware of, I believe these other threats and risks are going to compel big investors to keep one finger on the trigger for the foreseeable future, ready to bail out or possibly kick off major stock market crashes. again, inflation can be a positive economic influence when the time is right and it doesn’t get out of control

A bit of inflation helps grease the wheels of economic just as long as rising prices don’t outpace jobs and job growth too quickly and by too much but it allows the Fed two raise short-term interest rates and have ammunition to lower them again when another recession hits, in fact, I believe that’s why the Feds are anxious to manufacture inflation and they’re frankly so frustrated that they have had difficulties ending this inflation. As long as inflation remains below that 2% target the risk of another recession remains in place. Even worst the economy remains vulnerable of falling into a deflationary spiral which is an even greater risk right now than inflation and I think Wall Street knows it too. A deflationary spiral starts when consumers in business feel more compelled to save and hoard money than to spend it as I have discussed that has largely been what’s happening here since the financial crisis, fortunately I haven’t been stuffing money into their mattresses they have been paying down debts and trying to rebuild their retirement account many of which were devastated the market drops starting in the year 2000 and the financial crisis starting at the end of 2007 because of that continued commitment to investing we’ve had an asset recovery since 2009 even though the economy has lagged far behind. The fact that most people have stayed active in the financial Market as also helped us avoid a full-fledged deflation spiral although it may remain a threat as long as people are more inclined to save than spend the problem is I don’t see that changing anytime soon. Again that is because America is in the  midst of a major demographic shift much as Japan experienced 25 years ago, it’s the largest group of consumers are now past are getting past the age of consumerism. Baby boomers were the one help Hannah to keep the stock market elevated and also the ones I believe that continues to frustrate the feds effort by driving up long-term interest rate by flooding the market with bonds and continue demand for secure investment among boomers and in my opinion should offset the increase Supply keeping prices and relatively stable or at least keeping interest rate from getting too much higher sign from where it already got. But, if lack of spending and lack of demand should ever get to the point where they become decreased then that is where the deflation spiral could take hold. The United States and other countries experience deflationary states during the Great Depression and the threat of deflation along with perpetually low-interest rates has been a part of Japan’s economic picture for about the last quarter century. With our demographic picture now somewhat what Japan’s was 25 years ago, I believe deflation is a much bigger immediate and a long-term concern than inflation, however the other possible threat eventually is the threat of hyperinflation which is the exact opposite of deflation which is a potential, primarily if the United States is to ever lose its status as the world’s Reserve currency. In that case,  we could see inflation rise so steeply and rapidly that our own money loses all of its value and people will switch to foreign currencies. It sounds outrageous but I actually had a client whose family live through the worst period of hyperinflation in history which occurred in Hungary in the mid-1940s. He still had some of the currencies and the actual build themselves and he actually showed me in a photo album how it changed in the course of just a few months. In 1944 Hungary’s highest denomination was 1000 pengo by the end of 1945 it was 10 million pengo and by mid-1946 it was a pengo of this denomination, now that is an extreme example of course but with the global financial markets so closely interconnected today, hyperinflation it’s not b come on.eyond the realm of possibility down the road, not by a long shot. If we were to ever lose our spot as having the world Reserve currency we can end up in a situation similar to Hungary in the 1940s. Again I believe Wall Street is also aware of this risk, both of these risk deflation and hyperinflation, neither of which are temporary short-term factors. A demographic shift has a long-lasting impact just like Japan so don’t expect big investors to take their finger off the trigger anytime soon, volatility and threat of all right next to Major market crash I believe are here to stay. Now it’s time to welcome back Kelsey Williams, you know Kelsey the new fed chairman, Jerome Powell just recently announced an aggressive schedule for raising short-term rates, your thought is that they are willing to abandon that schedule pretty quickly if you think it is starting off economic growth.

Kelsey Williams: Absolutely, they would change in a heartbeat if they knew that it was going to create bigger problems

David J. Scranton: What do you think they’re thinking, how is it possible for example that with all this increased money supply over the last decade or so trying to create inflation, trying to stimulate the economy and haven’t been able to do it, now this year in a different reversing qua they’re going to be issuing almost twice as many new Treasurers this year than they did last year, almost a trillion dollars this year thereby depleting the money supply, how do you think, they think they’re going to be able to continue to manufacture inflation while reducing the money supply.

Kelsey Williams: I don’t know what their a logic is but I’ll tell you how I can see most of their actions over time, I compare them to drug addiction. We are very much addicted to the money drug in terms of seeing higher prices for everything and we get confused about what price and value are so the Federal Reserve continues to create inflation over time there will be  periods of contemporary infractions as you just mentioned, but the government has to stay in operation and is that is another one of the primary functions of the Federal Reserve, is to make sure that the government have enough money to operate which is why there is always a continuing issue when it comes to treasury security

David J. Scranton: You’re right you could buy a cup of coffee in the morning and it picks you up you feel good and by mid-afternoon you start to fall down and by this time you have to take two cups to get the same result and pick up. For a lot of people by the time they get to the evening they can have three cups and go right to sleep and it’s not going to make a difference, the drug loses its effects over time and if that’s happening. Which Camp are you in as do have some people bad things we can keep taking on more debt forever and we can take ourselves out of it while the other Camp thinks but eventually there’s going to be a Day of reckoning. What are your thoughts?

Kelsey Williams: I definitely believe that there will be a day of reckoning, the problem is when nobody believes this but I believe the seeds are there and it can happen anytime, but I also know that they have pulled a rabbit out of the hat on numerous occasions and we don’t know how people will react. If people were to ever decide that there was a problem or they actually become aware of the extent of the problem, nobody is going to be able to stop it when it starts to go in the wrong direction. Otherwise, the new fed chairman as far as I am concerned it status quo as I don’t think there is a whole change because it is your power or Janet yelling and I think that it is possible that they can extend things for several more years.

David J. Scranton: They say don’t bet against the Fed and I think there is something to that, as we need to wrap up tell our viewers where they can get your book.

Kelsey Williams: The book is available on Amazon and it is available in digital format and there is a free Kindle reader if you don’t have one on your mobile device and it is also available and paperback,

David J. Scranton: It was wonderful having you and thank you so much for being on the show

Kelsey Williams: Thank you very much, Dave.

David J. Scranton: Alright, stay with us for our next segment and our next guess we’ll be right here on “The Income Generation”.

So why did I feel that it was so important to focus on this issue today. Well because the potential repercussions inflation or deflation for investors are widespread and I hope you are starting to understand from what we have discussed so far the extent to which that is true, but the most important reason was to help clarify some of the misconceptions about this topic that can result from media hype. And the worst inflation fear has a nice ring to it and that makes a great headline for the media when a journalist tries to explain what happened in February when the Dow to intraday thousand point drop within a week the market experienced a 10% correction and to a certain degree, the explanation has similar accuracy. Yes wise, the interest rate can lead to worried about persons who don’t understand that the relationship it’s changing, again inflation can yes lead to a trigger of high-interest rate but it generally doesn’t work the other way around, yet many people in the media often misinterpret rising interest rate as a cause of inflation. It can also be that some investors are worried that the FED is trying to sabotage trumps’ political agenda, we talked about this before and my expert opinion, however, is that I believe them many Wall Streeters have other more long-lasting concerns on their mind right now, mainly concerns related to our aging population, our current demographic shift which has major repercussions for the economy and for the financial markets. It all boils down to the point that and the fact that baby boomers which are the biggest demographic or not only beyond the years of spending what are increasingly committed to lower risk investment and more focused on safety and income. To a lot of extents that means Bonds and bond like instruments, which means that we will be the ones who will continue to help our own cause by investing in bonds thus keeping values up and interest rate down in the end if the Federal Reserve continues to fail in its effort to manufacture inflation then there is little threat of that pushing interest rate higher either. All of this is why I believe the greatest threat include Wall Street is really is that of a potential deflationary spiral and its potential to trigger the third major market crash of the century. As I have discussed on previous shows history says that corruption can be between 40% and as much as just 70% and on the other hand it’s only a major threat if you still have a significant portion of your portfolio in the stock market as it happens. My next guest Kevin Massengill is the founder and CEO Golf Meraglim Holdings which has a creative approach The predictive Market Analytics. Before that, he was senior vice president Ledo’s a 5 billion dollar science and technology company. He also serves as of the managing director for the investment firm Silver Leaf Partners and he is a retired US Airborne Ranger.

Kevin Massengill: So nice to be with you.

David J. Scranton: So let’s talk about inflation, what’s your take on inflation, do you think the feds can successfully that inflation backup in the 3% range or do you believe there are so many deflationary products that are going to be really a continued to challenge for them?

Kevin Massengill: It is a continuing challenge to have enormous deflationary pressures if you read Harry Dents’ excellent work on the demographic issues the age of baby boomers then you will see the pressures there. However, I think if we use their numbers, let’s say their numbers aside if you look at actual numbers calculated by the John Williams shadow stats we’re averaging around 10% inflation per year right now if you strip out all the donax and the inflation so they’ve done since maybe the mid-nineties, actual inflation actual cost of living increases that your listeners or feeling every day they are much closer to 10% find the 2%

David J. Scranton: Kevin, how could the CPI index be so far off then, if it’s 10%

Kevin Massengill: Deliberate human intervention, because if they didn’t do that Social Security payments would be about twice what they are right now and the system will be going bankrupt even faster so they manipulated those numbers starting early 80s and then it’s accelerated and the mid-90s. This was a bipartisan effort this was not only Democrats or Republicans it was people though who lacked the moral courage to face the problem head-on and fix the fiscal problem instead they were taking out of the Hide of all retirees and pension holders a little bit every day. That aside, the answer you are questioning about; deflation versus inflation.

David J. Scranton: For now we have two conspiracy theories on the show I had one that I introduced earlier. If that is the case if it is truly 10% do you see that backing down now with a demographic cycle working against us, will this be the Harry Dent type issues?

Kevin Massengill: Sure, It could surely, it could shortly, it could do it for a brief short correction. I think what will happen is that the government will immediately overreact and you will get the Ben Bernanke style helicopter drop you will get the four and a half trillion que like you did in 2007 and 2008, you will get an over-reaction. The reason for that is a deflationary environment is very bad for a government that is 90 trillion dollars in debt, their gap accounting rule is stealing in the hole another six trillion dollars a year, so it’s good for your listeners, horrible for the government and the government is not going to stand still for it.

David J. Scranton: That’s right, it makes sense, Kevin stay with us we have a quick commercial break we’ll be right back. You stay with us too because we have a lot more in terms of words of wisdom from my new friend Kevin Massengill we’ll be right back.

We’re here today with Kevin Massengill not only an inflation knowledge badass but I real true all-around badass as an Army Ranger. We’re talking about inflation and the Federal Reserve is going to keep printing money as they are more worried about deflation than inflation. I agree and entirely. What camp are you in, do you believe that we can go ourselves out of all this debt or are you in the camp that there has to be a Day of Reckoning eventually.

Kevin Massengill: So there be a Day of Reckoning, legend believes and it is called the crack-up boom. Whenever you start monetizing your own debt I think the US government and Feds now are buying up to 70% of U.S. Treasury prints. How long do you think that is sustainable? So you’ll have a crock up boom and there will be a reset probably against the price of gold, probably against gold Holdings divided by the M3 or M2 currency that’s in circulation and they will wipe out the savings of everybody whose assets are denominated in dollar currency to the extent to that your investors can. I will do two things overcome the biased thing that it has that happened my lifetime and I have been hearing about this since and the gold Windex is not happening till now, why should I worry about it now? And the second bias is these issues are too big for me learned helplessness, one might to take these issues on, these people sound like they know what they’re talking about, who am I. You have to set that aside there is no adults behind the wheels of the car, you’re not a seven year old in the back seat of a car going to sleep because your dad can get you home in a storm. There are no adults it is just you and your family so you need to take these things seriously and understand that Fed official and Central Bank officials do not understand what they’re doing

David J. Scranton: It is one big economic laboratory experiment let’s face it so with that in mind this Day of Reckoning won’t happen tomorrow

Kevin Massengill: Probably not maybe not for 4 to 5 years but we know it’s coming

David J. Scranton: Between then and now if we say it’s okay and there is more deflation than inflation so there might be more manipulation in the industry until it’s downward again I’m leaning more to the negative interest rate environment so the question becomes, what’s really more at risk right now the stock market or the bond market it seems to me like it’s almost like

Kevin Massengill: I think it’s equal quite frankly, I think we are in a position that we have never brought this uniquely in the world. You’ve never seen situations with the negative interest rate, you’ve never seen bond yields like this in 30 years so we are really in unchartered territory, so my recommendation to your listeners would be own little precious metals, hold a little cash and be ready to jump either direction because nobody knows how this is going to break. We know how the story ends, the story ends with a currency being destroyed, blowing up the currency and coming out with a new one, that is how the story will end but getting there from here, you could go through a really short deflation and a which point having some cash on hand would be smart.

David J. Scranton: So Kevin I am hoping and praying that it doesn’t happen in our generation, but you never know so we need to leave it there. Kevin thank you so much for being on the show today and you had a lot of great things to say and we appreciate you being here.

Kevin Massengill: And you stay with us too we’ll be right back on the income generation

Thanks to both of our guest for joining us for another episode of the income generation and I would also like to thank you for our new and returning viewers. Last week’s show we focused on some of the unprecedented challenges our Generation faces in regards to preparing financially for retirement, a lot of those challenges are in result of changes in society of the financial Market but you could say today’s topic in some ways what the flip side of last week’s. Society and the market have had Major Impact on us no doubt and to a large extent we’re returning the favor as Baby Boomers we are all past the age of 50 now, most of us are beyond, or just getting beyond the age of consumerism and we have shifted our focus much more towards saving and investment. As the nation’s largest demographic this has major repercussions for society and economy particularly at the time when the Federal Reserve is trying to desperately entice spending and to manufacture inflation but not only are we passed our primary years of spending we are also wise to all the artificial tactics being used just trying to seperate us from our money. We have been in an artificial economy now for more than 30 years as well as in some ways over 80 years and by now we recognize it for what it is. So, what does all this mean and the face of market volatility and a wall street fears about inflation and rising interest rates, it means those probably are not the only issues worrying wall Street these days. That’s why both of us talked about deflation it means that in the big picture if our economic situation plays out like Japan, there is potential, potential for deflation and even possible ultimately a potential for Ultra inflation. Our last guest reaffirmed our also major concern which is especially true for investors who haven’t yet made that shift from growth to protection and income. Fortunately, with the market having rebounded partially from that 10% plunge in January, it is not too late to make that shift, not yet anyway.

Thanks for watching bottom line is that if you are close to retirement and you really want to know how to protect and maximize your money it is absolutely essential that you stay informed and up-to-date and right here is how you can do it. Here on the income generation, I Am David Scranton and thanks again and we’ll see you next week