The McDonald's Economic Index

VANCOUVER ( Bullions Bull Canada) -- Business news readers are not only continually bombarded with various "indices" having new ones inflicted upon us. The purpose of these contrived numbers is obvious.

Any economic index is "derived from" economic fundamentals, while hiding the raw data from us upon which the index is based. This makes these indices wonderful propaganda tools. Much like many forms of "processed food" strip out the food value of the raw material that went into them, the same is true (in economic terms) with these indices.

I thus offer readers a refreshing change: an economic index that actually means something.

Presenting the "McDonald's Economic Index," or MEI.

The premise behind the index is simple. With McDonald's ( MCD) now firmly established across the (decaying) economies of the West and rapidly becoming established in the (dynamic) "emerging economies" of much of the rest of the world, McDonald's sales now provide a useful snapshot of overall global economic health.

Note that unlike regular food consumption, purchases at McDonald's are discretionary. They will rise when the economy is robust and sag as the economy slows. The one weakness in this "index" is that like all other retail sales data (and most economic data in general) it does not strip out inflation from its sales numbers, so we will have to make that adjustment ourselves.

What also makes the MEI useful is it reports its sales with a clear Western perspective. Sales are broken down into three regions: the U.S. (5% of the world's population), Europe (5% of the world's population) and APMEA ("Asia/Pacific, Middle East, Africa") - i.e. the rest of the world.

Of course, such a classification makes sense from a corporate perspective. It separates its divisions into the already saturated U.S./Canada market, the nearly saturated European market and MCD's operations elsewhere.

In October, McDonald's reported something it had not done for nine years: a drop in overall global sales. However, not only was there an overall decline but there were large declines in all three regions. Sales fell 2.2% (month-over-month) in the U.S. and Europe, and 2.4% in the APMEA region.

As noted previously, this is a drop in sales revenue, and thus does not factor in soaring inflation. As I've mentioned in several recent commentaries , as recently as the month of July the World Bank was reporting global food inflation increasing by 10% in one month alone.

As a low-margin food producer, McDonald's is forced to pass along that inflation to its customers in the form of higher prices. While I doubt very much that McDonald's has hit its customers with any sort of across-the-board 10% increase in menu prices in October, clearly food inflation would have forced prices higher by at least a couple percentage points -- effectively doubling the (real) size of this one-month plunge.

With the U.S. propaganda machine blaming every form of U.S. economic weakness on Hurricane Sandy, let me repeat that these are October numbers, and thus cannot be blamed on the hurricane, which struck at the end of the month.

As a discretionary form of (relatively) low-cost consumption McDonald's sales also make a reasonably good proxy for GDP. With that in mind we can now take a closer look at these numbers to see what else can be gleaned.

The obvious question is what are we to make of the fact that sales in McDonalds' only "growth market" (with growing economies) declined by an even greater amount than sales in its established, dying markets? What we see is a crystal-clear illustration of how money printing by global central banks (and primarily Western central banks) is destroying the global economy.

"Inflating the money supply" is the actual, original definition of inflation, and all price inflation (what we now simplistically label "inflation") is directly derived from that money printing . Inflation destroys both wealth and incomes since the currencies in which our wealth/incomes are denominated are being relentlessly driven to zero via the hideous euphemism "competitive devaluation."

We see this banker-produced inflation not only decimating the crippled, debt-bloated economies of the West but it has now reached such a rapacious rate that it is causing the healthier, dynamic economies of the rest of the world to sag as well.

The Achilles heel of these economies is that even though incomes are steadily rising, they are beginning from a very low (near-poverty) level. This makes these economies (and their populations) especially susceptible to soaring food prices, which is why at the same time that food prices were exploding Asian governments were meeting to discuss "the global food-price crisis."

This also gives us yet another glimpse at the "hyperinflationary depression" that John Williams of Shadowstats.com has warned (for many years) looms directly ahead of us.

The mechanics here are simple and obvious. Soaring inflation destroys incomes (in real dollars) and thus purchasing power. The collapse in purchasing power causes a direct/immediate collapse in profit margins, as businesses also face soaring costs but are unable to pass those costs along to their anemic customers.

This slowing economy causes deficits to explode higher (as we are already seeing). This leads to more money printing to fund the deficits, still more income destruction, still more profit destruction, still larger deficits. The vicious circle continues to spiral downward out of control.

Meanwhile, as out-of-control money printing causes the prices for ordinary goods to spiral higher, cash-strapped consumers begin defaulting on their paper debts . This is followed by governments/corporations defaulting on their paper debts (as we have already seen with Greece), and the hyperinflationary-depression picture is complete.

The McDonald's Economic Index is warning us that John Williams' (predicted) economic Hell is now imminent. Lest apathetic readers get the urge to brush off the October collapse in McDonald's sales as some one-month anomaly, it comes just weeks after McDonald's reported its slowest quarter in nine years.

When a 21st century world can no longer afford its Big Macs, the message is clear: head for the lifeboats. This ship has just struck an iceberg.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.