What is Inflation?
Translated by YouTube
hi guys Lynette Zang Chief market analyst here with ITM Trading a full service physical precious metals brokerage house.
Today I’m going to start talking about inflation because i don’t think people really understand it.
Milton Friedman said inflation is one form of Taxation that can be imposed without legislation Eric be one up thank you.
This is baked into fiat money so by design over time it is designed to the to get you to work for less because of that nominal confusion that we’ve talked about in the past.
I want you to understand that this is not possible on a gold standard and i’m going to show you that but i’m also going to explain the bonds now this top chart here
Eric can make that ok this top chart is the CPI or consumer price index which is how the government gauges the rate of inflation they’ve been shooting for two percent now you can look at your personal experience and know whether or not that accurate but just staying with what they’re talking about they said that this most current count actually there at two and a half percent inflation year-over-year now here’s the problem this bottom chart can you see that yeah okay reflects your purchasing power so that’s how inflation impacts the dollars
so one way inflation goes up and value of the dollar goes down. correct. ok so i left what you have your your dollars is he paid with the true rate of inflation regardless of what they make it look like that nominal confusion piece your value is still going down
right now i want to explain that simply put in place and I’m going to talk about it next week in relation to stock this week I really want to talk about bond
so i want to show you bond a bill knows anyone of them are all debt instruments so if you were to buy government bonds or corporate bond than what you’re actually doing is loaning that entity money
whatever rate you agree to and you by the blonde you lock it so let me show you how bonds work is important ok this is the date of issue right in the middle alright this is interest rate this is principal ok when interest rates go down the principal bond of the principle of the BOnD the current bonds that are out there go up meeting place the price when interest rates go up the principal value of the price of the bond goes down because bonds must always be at market whatever the current market is so if you for example if you when a bond issues its issue at par the thousand dollars and let’s say there’s the coupons to make life easy of two percent so if interest rates go to two-and-a-half percent that you can see how the principal or the price of the bond goes down but you can also see that the longer the maturity the greater the fluctuation okay can you see that so shorter term bonds positive maturing say a year are going to have left fluctuation then they bought that mature in years it really is just that simple except for derivatives and we’re going to talk about that so I want you to understand before i move forward with this that boss still no are always debt instruments and they must always be priced at market so for you as a holder of a bond that matter and we know that interest rates have been below two percent below even know you’re over said in many cases so in that case we have to know without a doubt that they are not keeping pace with inflation
That too is all by design so this is the -year treasury at it you can see what i’m talking about this is the price and this is the yield can they see that ok guys ok so you see how there are a mirror image just what i was trying to show you now we do know that central banks have been dumping Treasury lon and you can see that particularly once we hit last is the shift in the US Treasury has been a had more towards the selling of it and that’s been escalating now this is showing you how all of the central bank can you see all of that you want to take it yeah okay because really all this is about is showing you the correlation and help similar all of these government odds are whether it’s the Treasury or the Japanese government bond or the German government bond but you can also see how interest rates have been looming up so you can see that correlation now why does all of this really matters okay i’m getting there Carl I’m sorry that’s gonna be a little longer distances an important these are from the isda so it’s those guys that regulates the derivative and these are the current I all this morning the current interest rate derivatives that are out there and you should be able to see that is something like notional which means we don’t know what the value is that rest but a notional value over trillion and those that that are written against these interest rates so when you see these interest rates routes and I on their way thank you biking ok that’s going to impact the enjoyment of trade okay we’ve talked a lot about them but listen the income that the veins generate that confused me from those interest rate derivatives which is twenty percent or more of their revenue so they’re not really going to stop those what we do not know is what interest rate level will trigger a negative derivative effect so for you as an individual if you hold buzz in a rising and a rising interest rate environment so if you have any bond etf bond mutual fund any of that kind of stuff image rising interest rate environment that’s what’s happening to your principal alright and it does not look like that’s going to change because all of the economic policies of the truck administration are for inflation and that’s also what the government wants because remember they that’s the inflation is an individual is an invisible tax on your wealth and the amount that you work for so it matters but why don’t they like gold so that’s it for bond well here this line up here shows you current this whole thing and currencies in terms of gold gold eliminate the government’s ability to generate that inflation or the central bankers inflation so this top line here is gold and all these other currencies you can see how their purchasing power how inflation has impacted the purchasing power of all of those currencies the intention is to inflate those debt away the debt is not available that’s what that reads that is about so that’s why we see central bankers lying gold that’s why people that understand money Oh goals is very very simple so next week I’m going to show you how inflation correlate or a why the stock market goes up during inflation because that’s what they want it is the perception thing but we’ll talk about that next week so have a great weekend be safe out there remember to Like us on Facebook subscribe to us on you to follow us on twitter and give us a call 1.888.own.gold