ONLY 3% inflation?

According to figures released today by the Bureau of Labor Statistics, the CPI declined by 0.5% in October, most of  the decline being in apparel and energy. During the first ten months of 2006, the CPI-U rose at a 2.4 percent  seasonally adjusted annual rate.  This compares with an increase of 3.4 percent for all of 2005.

Many respected economists have argued that a little inflation is good for an economy, and 2% or 3% seems like a little, so we imagine that Mr. Bernanke is relieved to see the year-to-date figures. No doubt the public and the financial markets will be relieved, as well.

But, just what does a 3% inflation rate really mean to the average citizen over the long run? It means that in purchasing power, a dollar held for 25 years would be worth about 50 cents, in 50 years about 23 cents, and in 100 years, about a nickel.

The old story is that if you put a frog in a pot of hot water, it will jump right out, but if you put it in room-temperture water then gradually bring the water to boiling, the dumb frog will just let itself get cooked.

Right now, the monetary pot is only luke warm, so most people holding dollars are insensitive to the loss and don't feel any urge to jump out of the pot. Even if the chefs at the Fed don't increase the rate of money creation, and price inflation stablizes at 3% a year,  dollar holders are still being slowly cooked. Moreover, there's little doubt that these low inflation rates can't last for long.

What's the alternative to holding depreciating currencies? Tangible goods...the very things that the dollars will be buying. That's why those of us at The Sovereign Society are strong advocates of natural resources, including precious metals, oil and gas, industrial commodities, and the companies that produce them. Visit us at www.sovereignsociety.com.