FOREWARNED IS FOREARMED

 This has got to be the most important article I’ve read in 2026. FOREWARNED!

Bessent vs. Druckenmiller

Another way to say it:

America’s Increasingly Incoherent Dollar Policy

Social Security Armageddon

A friend recently sent me a link to an article about the precarity of the US Social Security system. The headlines read:

Social Security’s Finances Erode Further, Risking Benefit Cuts

The nation’s key program for retiree benefits continues to see financing shortfalls. Unless Congress acts, those drops could lead to payment cuts in eight years. [NYT 6/18/25]

Photo courtesy Pixabay

Of course it scared her. She noted: “Not good news for us old folks.” I had to respond: The solution is either to find remedies or go broke. 

I am not as worried as my friend. I don’t think any politician will be willing to reduce payments to current seniors receiving benefits or to those soon to receive benefits. That would be suicide. (Voter participation by age; Voters by age group Table 1) 

On the other hand, I do hope that eventually (actually sooner rather than later) our legislators will have enough sense to do one or more of the following (and it will need more than one): 

1. Raise the retirement age for most categories of older workers except a few that work in jobs that are physically demanding; and do it for generations down the line, not the ones coming up to retirement age in five years. This is in order not to penalize those who are counting on benefits soon, and to insure that the younger ones will have time to prepare themselves or find a source of help. 
2. Reduce the payments for more wealthy seniors.
3. Increase the threshold for taxation of higher salaries.
4. Find ways to get people to put more in their 401(k)s.
5. Enlarge the 401(k) and other retirement programs, or create new types of portable or individual retirement savings accounts for people who don’t have them through their employer.
6. Teach people at a young age to save more money instead of spending everything they earn. They should be able and encouraged to establish an independent retirement fund for themselves. Most people, especially those who are on the lower salary levels (i.e. those who need it most), believe they are going to be covered by Social Security in their later years and just don’t know how (or want) to save money. And yet it is possible even on a tight budget. Small regular savings-accounts contributions will increase in value dramatically over time with compounded interest. And for those who truly can’t seem to save a penny because of family obligations or other difficulties, the focus should be on improving professional skills and hence one's financial situation (fun and yet still very instructive videos about budgeting and getting oneself out of debt and into financial security).
7. For the truly indigent and needy individuals, pass legislation encouraging local nonprofits to expand their aid programs and to function in a more targeted and community-oriented way.
8. Educate youngsters – and adults – about the dangers of the overuse or abuse of credit, and about the terrible losses that can occur due to the punitive (and rightly so) expense of not paying revolving credit accounts within the first month or so. (This is compound interest in reverse times ten.)
9. Other options that do not involve increasing government intrusion into the marketplace or inventing unconstitutional legislation, but that would cure some injustices in the status quo. (More on those another day.)

That may sound hard and/or unrealistic, but that’s what I believe must be done. Do I think it will be done? I’m not betting on it.

Updated M&M Inflation Index & Graph - 2025

2025 is already upon us, and it’s time to update the M&Ms Inflation Index. Like some of you, I remember when a 1.69 oz packet of M&Ms was 5 cents. Yes, that’s back in the 1950s. Today, the price of that same packet has gone up to $1.79. 

For you mathematicians, that’s a whopping 3,480%! And that means the dollar’s purchasing power has gone down in the opposite direction, maybe something approaching the same amount only in reverse.

M&Ms are made by the Mars Company. (By the way, the Mars family has quite an interesting history.) They have made it a point to offer the 1.69 oz packet since the company began to make them, come hell, high water, or monetary inflation. Of course they also understood that a variety of sizes and prices can please the public, so you find their products in a plethora of different packaging.

So for the economists among you, here below I have updated the chart for the 1.69 ounce pack:

A professional economist friend of mine, Peter Earle at AIER, explained that price inflation has certainly contributed to the uptick in our favorite snack. In this particular case, however, there is another factor: cocoa bean farmers are having terrible problems with their crops, especially in Africa where most of them are produced. 

Here’s a chart giving the price of cocoa for the last five years, from TradingEconomics.com:

The price has risen about 340%in the past year and a half – quite extraordinary, and most probably not just due to monetary inflating of the money supply.  J.P. Morgan has what I judge to be a reasonable explanation of the cocoa phenomenon. They describe the causes of the increase in the price to be mostly due to local economic, political, social, and market pressures, not linked directly to monetary inflating, other than on the retail downstream product level. One supposes that the local and international devaluation of money through monetary inflating could indeed bear some responsibility, but it's difficult to determine how much.

 We’ll just have to see, if and when the farming problems are solved, whether the price goes down. Cocoa prices have indeed subsided a bit, but on the retail M&M level will the reduction be reflected in your M&Ms? What’s your bet?

Given the market factors in the price of chocolate, our M&M Standard is perhaps imperfect. Dare I end this by stating that one of the best barometers to use in determining the loss of value of a currency is gold? Here is Kitco's gold chart showing how many dollars you get per ounce:

I also like this one from PricedinGold.com, showing how many milligrams of gold you can buy for a dollar. It really hits where it hurts. And for this you can blame the indebted-dollar farmers at the Fed and the distributors of these inflated and borrowed dollars: Congress.

US Gold Reserves - Short 20th Century history

What trajectory did the US gold reserves follow in the last century?

Below is a World Gold Council chart that might be accurate, although there is some debate today about exactly how much of the US gold reserves are accurately accounted for. Some say a portion of it is no longer there, some say that a percentage has been used in financial transactions that would involve claims to some of it. But the chart is probably not far off.

You can see that gold began leaving the country starting in the mid-1950s. By the end of that decade a few wise financial advisors were recommending investing extra savings – i.e. savings one could afford to risk – in numismatic gold and gold stocks. (It was illegal to hold gold outright.)

The reason was that the gold standard kept the official dollar price at $35, but there was so much dollar inflating going on that foreign countries were smart enough to get gold instead of holding onto dollars (which dollars had been received in payment for imports), and this was causing the unofficial market gold price in dollars to rise.

That’s why in 1971 Nixon probably looked at a similar chart and finally said stop, no more, we’re “closing the gold window.” And that’s when the dollar price took off, as wise advisors had predicted it would. More accurately, that’s when the exchange rate for dollars plummeted and price inflation in the US began to explode. (Yes, price inflation can be late to the party, but it always follows a period of monetary inflating.)

(The yellow line represents the dollar price of gold.)

Note that this chart stops in 2005. Here below is the chart from Kitco for the last three days. The dollar price is up to $2,290 as of this writing, even touching $2,304 for the first time in history. Not a bad investment, right? (But I’m not an investment advisor.)

Gold always seems to reflect the reality of the value of money, even if it no longer is officially an element of any country’s monetary standard. Who said the gold standard is dead?

What is Stagflation?

Someone recently asked me to explain the term “Stagflation."

Some of you probably remember the Nixon years, the early 1970s. This is the period when Stagflation was flagrant. It’s simply the combination of two words, stagnation and inflation.

Everyone seemed shocked that both could occur at the same time. This is because back then (and still in the minds of a few today), a Keynesian theory called the Phillips Curve was in vogue. It said that “inflation and unemployment have a stable and inverse relationship.”

https://www.investopedia.com/terms/p/phillipscurve.asp

But in fact this turned out not to be true, since in the early 1970s we had high price inflation and high unemployment combined with low GDP, which by itself is often described as stagnation.

The term “stagflation” was first used by an Englishman, according to this website. The article gives such a good description of the issues involved that I really think you would find it interesting. 

So what is the real reason my electric bill is going up?

My electric bills have been going up for the past few years, so I decided to analyze the data to figure out what was changing. Was it the consumption? Was it the per kWh charge? Was it the taxes? Maybe the service charge(s)? Or something else?

The consumption was pretty predictable and regular. Interestingly enough during these inflationary times, the per kWh charge was exactly the same over an eight year period. Taxes and other state charges didn’t seem to be modified very much, and the monthly service charge was also unchanged.

So where is the culprit?

In California, they have come up with what was supposed to be a credit to our account due to the use of renewable energy. They must have thought that renewable energy sources would provide less expensive electricity. 

Starting in 2016 in our case, this line on the bill was a very tiny credit. But as time has gone by, that column has morphed into a charge climbing steeply. See the result on my chart below.

This supplemental charge is calculated as a percentage of total consumption multiplied by the kWh price, so it moves up and down with changes in consumption. But you can still see the trend. Where it used to be a negative number, it has now reached a level of about 30% of the kWh rate, and hence of the whole bill.

This “Energy Cost Adjustment” has become a way for the company to increase our price while maintaining the per kWh rate. Perhaps they’re just trying to deal with California’s crazy laws, but it’s still VERY SNEAKY, don’t you think?

So is it just an underhanded way of increasing the price? Or did everyone simply misjudge the cost of renewable energy? 

Updated Proprietary M&Ms Inflation Gauge

I’ve made some revisions to my M&Ms inflation gauge, this time basing it on calculations of the “per ounce” price rather than per packet price, while still expressing the chart values on the historical price of a 1.69 ounce packet. 

Somewhere I read that the M&Ms company claims they always sell the small packets at 250 calories per packet. I have some issues with that, because I have noticed over the years that the size of the packets on sale seem to vary from year to year. However, assuming it is true, that would be the 1.69 ounce packet, according to the linked website. So I have chosen that size to be the anchor for this new graph.

You will note that I’ve left lots of room for future price inflation – and for my own stick-to-it-ive-ness given my advance age....

Enjoy! Hopefully along with a packet of Peanut M&Ms, which are my favorite! (Although the chart is based on the old classic.)

What is a Flight from the Dollar?

A friend asked what a “flight from the dollar” looks like. I can certainly give my understanding expressed in easy-to-understand language.

A “flight from the dollar” happens when the citizens, or even the global financial system, rejects the dollar as a store of value. Here’s a little history to explain the context.

In the late 1800s, a dollar could be exchanged for 1/20.67 of an ounce of gold. This was the “gold standard,” whereby a dollar was “worth” (i.e. could be exchanged at any bank for) 1/20.67th of an ounce of gold. The banks accepted freely any amount of dollars in exchange for gold at that rate. The standard, as long as it remained in place and was respected, helped banks maintain a safe amount of reserves, a conservative amount of loans (made with real savings), and well-backed credit advances (i.e. credit creation based on commercial paper such as bills of lading and the like); and it kept the economy on a relatively even keel. The fact that every bank had to give out one ounce of gold for $20.67 in paper money kept them – and the dollar – honest, so to speak.

In 1913, the US created its first central bank, which became the arbiter, instead of private banks, of the amount of credit creation that would take place. The original rules applied by the central bank were pretty sound. Credit loans to banks were based only upon commercial paper. However, in the longer term the rules changed. Within a couple of years the central bank began to do what central banks have done for centuries, i.e. they began creating extra additional credit, which the government used to cover wartime and other expenses. 

The first episode of inflationary credit creation (what economist Edward C. Harwood labeled “inflationary purchasing media”) appeared during World War I. As the US central bank began to allow the expansion of credit above what was prudent (according to Harwood), the government spent it on the war effort. When the war was over, the central bank tried to contract that credit, which forced the country into something of a recession in the early 1920s. 

Then during the subsequent years Harwood noted that a lot of “inflationary purchasing media” had still not been cleared from the system, which was maintaining prices too high and encouraging bubbles in real estate (in Miami at the time), and in the stock markets. By 1928-29 he began to warn the public through articles published in financial journals that the previous monetary expansion was still in the system, which would probably end in another contraction. 

Indeed, a peak was reached in 1929. The central bank noticed the problem and tried to correct the imbalance by contracting the money supply. It was the right thing to do, because the excessive credit did indeed need to be withdrawn. Was the contraction too quick? Was the timing wrong? No one really knows, although multiple theories exist. At the same time, the government put in place some very strict trade policies that caused complications in the import-export markets, and we got the 1929 crisis, which extended several years into the 1930s.

In 1933 Roosevelt, in an attempt to save the gold standard, decided one day (literally) to force people to turn in their gold so that he could devalue the dollar down to 1/35th of an ounce. He explained that he didn’t want private “speculators” to profit from the devaluation. He also started the country on a centralizing-regulatory-socialist binge with his New Deal policies. Ownership of gold was outlawed. Much money was wasted in the various efforts, and the economy didn’t recover until the 1940s. By then the second world war was brewing. 

When the soldiers got home in 1945, they went right to work and got the place up and running pretty quickly, thereby probably absorbing the excessive credit created for the war effort. Given the difficulties experienced in the 1920s, the Western World decided that they needed to fiddle with the gold standard again. Global officials met up in Bretton Woods in New Hampshire and decided that the world would go onto a modified dollar-gold standard, i.e. the dollar would stay on the standard at 1/35th an ounce, and the rest of the world would use the dollar in international transactions. Somehow, they thought this would be better than a plain gold standard. 

This plan gave the US both a tremendous advantage and a tremendous disadvantage. The advantage is that nations needed to exchange their exports for dollars in order to do business, and some countries’ banks also bought tremendous quantities of US bonds as capital assets. Therefore the US could print just about whatever it wanted, and the dollars flowed around the world and never came home to roost. It's called “seignorage.” 

The disadvantage is that it is the equivalent of giving a credit card to a 16 year old.* 

It worked pretty well at first back in the early 1950s, but lavish money printing soon started again, creating another bout of creeping price inflation in the US. After all, it is not easy (or perhaps it’s impossible) for central bankers and politicians to determine with precision the amount of dollars that should be created and shared to maintain the Bretton Woods global monetary system. In around 1959, Harwood and others began to notice that in spite of the Bretton Woods fix at 1/35th of an ounce per dollar, the “price” of an ounce gold in dollars was increasing above $35 in certain markets. In other words, people were realizing that the dollar was losing its value. That’s when Harwood started getting people onto gold numismatic coins, gold stocks, gold “annuities,” and Swiss financial instruments, some of the very few ways to invest legally in gold and safe foreign assets.

This state of affairs lasted far longer than anyone thought possible, until 1971. France was getting wise about the loss of value of the dollar, and De Gaulle began asking for his nation’s gold at the official $35 price. Gold at $35 had become a good deal. It all came to a halt when Nixon “closed the gold window,” i.e. refused to pay out gold for dollars. (See this for a detailed explanation.) 

Since then, even though in the mid-1970s Americans could start owning gold again, the world has been on what is called a “fiat standard,” i.e. no standard at all. Over the rest of the decade, gold went from $35 to $800 in 1980, 23 times its previously fixed exchange rate. 

That’s a flight from the dollar.

Even though no longer in an official monetary role, gold still remains a good barometer of the value of currencies around the world. The dollar has continued to decline, and today the ounce of gold costs around $2,026. Yes, the gold exchange rate is “volatile.” But in fact it is not gold that is volatile. It is the paper currencies. After all, smart people watch economic policy and events, and when things start to get frisky, they start looking for ways to preserve the purchasing power of their money. The increased demand creates exaggerated swings in the “price” of gold. But in fact the one thing that remains constant is the underlying, on-average, longer-term stability of gold’s purchasing power. 

And the “price” of gold is one way you can measure the “lost value” of the dollar.

_____________________

* Today the US debt is over $34 trillion and climbing rapidly. This is WAY more than US production can sustain (about 145% of GDP). It is also especially dangerous when price inflation and cheap public borrowing sets in and when the Fed (rightfully albeit somewhat late) decides to take corrective action via higher interests rates. Over the past year or so, the yearly interest rate on the debt is now up to $500 billion, which is about 2/3 of the entire annual US military budget. (And here’s another interesting chart that I hadn’t seen before.)

Measuring Economic Freedom vs. Human Freedom

The Fraser Institute's study of economic freedom in the world for 2022 (data from 2020) has just been published. As usual, the stars of the show are Hong Kong and Singapore, with New Zealand not far behind. The US is at seventh place.

One might ask: How can an island that is completely under the thumb of a Communist nation be the most free nation in the world? And how can a country (New Zealand, No. 4) be considered free if its people just passed a law forbidding anyone born on or after January 1, 2009 from buying tobacco, ever? Not just before they reach the age of 21, but forever. (Good luck with that....)

Free image from Pixabay.com

Okay, I get the measuring sticks used by this study. They are purely economic. The measurements concern:

• Size of government
• Legal systems and property rights
• Sound money
• Freedom to trade internationally
• Regulation

But aren't there a few more criteria that they should include? For example, I could imagine adding these:

• Freedom of the press
• Not just the size but the intrusiveness of government
• Government stability and autonomy
• Monetary stability

And maybe others.

In researching this question, I answered it for myself. Fraser has also published what it calls the Human Freedom Index. In this study, Hong Kong drops to the 34th place, Singapore to 44th, and the King of the Roost is ... wait for it ... SWITZERLAND!

I could have told you that. My favorite country.

Here are the criteria for the human freedom index:

• Rule of law
• Security and safety
• Movement
• Religion
• Association, assembly, and civil society
• Expression and information
• Relationships
• Size of government
• Legal system and property rights
• Sound money
• Freedom to trade internationally
• Regulation

So be careful which index you use for decisions about your future. Frankly, what is economic freedom without human freedom, I ask you?

The Dollar's Reserve-Currency Status Might Be In Jeopardy

If you have ever wondered about the global use of the dollar as a reserve currency, you might be interested in this article now published at Seeking Alpha.

(I hope you can open it; if not, I can send a transcript. Just leave a comment, which I will not publish, with your e-mail address.)