Archive for December, 2007

Hello Inflation

I assume that everyone has seen the jump in wholesale prices.  It jumped by 3.2% last month.  This falls in line with what people have been actually seeing.  If all the commodities are more expensive, soon what we buy in the stores has to follow.  I think the amazing fact is that they are still understating inflation.\

I think one of the clearest indications of inflation is the falling dollar.  In the world economy, when one currency falls, it represents de facto loss of buying power for that country.  It can be argued that the inflation that the US is seeing averages about

The exchange rate for the Euro has gone from a low of .857 to 1.47 dollars per euro from 2001 to today.  This represents a loss to the euro of about 8.66% per year.  The the Europeans are saying that their inflation is around two percent per year, that means that we  are having an effect that will simulate inflation of around 10% a year after the US interior trade catches up to the rest of the globe.  I recognize this number is high, but I believe it shows some things that the government statistics don’t.  Loss of value is loss of value.  Our increases in productivity have made up for a lot of our inflation in keeping the cost of the goods in this country down, but we can only ask innovators to do so much. 

On the other hand, consumers think it is their duty to keep spending as if nothing has happened, and that is what they are happily doing.  This can’t go on forever.  The longer we put our heads in the sand, the worse things will be when we look.  The old fashioned theories of thrift, savings, and investment are based on sound principles, and as a nation as we do this we will restore national wealth.  Hopefully the politicians will pass laws that encourage this sort of behavior.  The flat tax is a good start.

In the mean time, I have my own ideas about what we can do to preserve the value of our money.  One of the big things is only keep an emergency fund in cash.  Put the rest in some sort of investment, so you can preserve yourself against the encroaching beast of inflation.  I prefer stocks that are tied to commodities and other countries economies.  Others prefer real estate.  Just make sure that each individual investment makes sense on its own.  Think about how many hours you worked for the money that you invest, and recognize that it is worth many hours of your time to make sure that the value of that savings does not dwindle down to nothing.  The people that conserve wealth will end up owning the wealth of this country.  We can all be haves if our choices don’t make us have-nots.

Mortgage Bailout- I am a fan of the one Bush has come up with. Here is why.

The bailout isn’t really a bailout at all.  It is banks recognizing that if they continue with the terms as described they will eliminate a portion of their cash-flow as the foreclose on houses.  The foreclosures will flood the market, farther depressing real estate values, and causing more banking problems.

The idea is that banks will just accept lower interest rates as a group for loans that are at high risk of foreclosure, avoiding a meltdown in the financial sector.  This was not Bush threatening fines and regulation or offering to throw money at the problem.  He offered an idea and provided a meeting where people could talk it over.  This is a splendid example of what a president should do.  Not pontificate and demand business lose money, but reconcile groups, without costing the taxpayers millions.

I guess the reason I am a fan is that it really isn’t a bailout.  It’s the banks not asking for more than they can get, so they get what they can.  It is the homeowners getting a break they don’t deserve, but why is that a bad thing?  I hope to get some breaks that I don’t deserve (getting into heaven, for example).   Anyway, your comments and your point of view will be appreciated as always.