Competition Towards Disaster

By Joshua Gamen

An article in the Wall Street Journal this last week titled “Fed Officials Mull Inflation as a Fix,” talks about the Fed reversing over 3 decades worth of monetary policy to fix this fragile economy and contribute to a recovery that is not happening like they had hoped for.

*(Monetary Policy is simply the regulation of the money supply and interest rates to control inflation and stabilize interest rates.)

The Fed is hoping that by lifting inflation, they will push “real” interest rates(nominal rates minus inflation) down. This would encourage consumers and businesses to save less and spend or invest more.

SAVING SUCKS

Robert Kiyosaki claims that savers are losers, and what is going on strongly supports his stand on the issue. It is absolutely insane to think that you can get ahead by simply saving dollars when the Fed is willing to speed up the printing presses to get more dollars into circulation, purposefully causing more inflation. As many know, President Nixon took the US off of the gold standard in 1971, severing the tie of our dollar to the gold standard. So for over 3 decades, the Fed has tried to keep inflation low. More dollars in circulation means the value per dollar in the existing supply goes down.

The point that the Fed is even considering inflation as an economic fix shows that they have given up on the dollar. And the world is catching on.(See value of precious metals vs value of US dollar.)

Last week, the dollar dropped to a 15-year low against the Yen. Investors on Wall Street are betting on the Yen, believing that the Fed will sacrifice our dollar to help economic growth.(Shown by a 72% increase on pro-yen votes.)

WHY WOULD THEY DO THIS?!?!?!

By weakening our dollar through inflation, US exports would become cheaper, creating export-lead growth. The dilemma with this is that EVERY nation is looking for export-lead growth, and they too, are willing to sacrifice their currencies to make it happen. China is keeping theirs artificially depressed to try and stay ahead in export wars. Thus, the US is trying to get China to let their currency appreciate, and trying to get the IMF(International Monetary Fund) to rally behind them on this. This competition is causing a race by the currencies towards disaster.

SO…????

My point is that the dollar is EXTREMELY dangerous now. All I hear is people talking about ways to cut back to save more. This is touted as a “responsible” economic strategy. The known financial voices are cheering that the people are being “wise with their money again.”(How’s that working out for anyone?…. :\ ..

I am saying this – Saving dollars is not smart. Financially, it’s actually quite ignorant. If you think saving dollars is a good idea, you are ignoring the fact that the Fed is doing everything they can to make the dollar weaker – by raising inflation in hopes of stimulating growth to the economy, and push us all into more debt.

(I know I am getting to get a lot of arguments on this here, so do your research and verify with facts what I am saying.)

GOOD DEBT VS BAD DEBT

Debt is money’s reality these days. Our economy only grows now if you and I are spending more, and more, and more. It is actually the interest on our loans that the ultra-rich are now after. (They already have everything else from us.)

Debt can, however, be good OR bad.  Good debt puts money in your pocket, bad debt is money that takes more money out of your pocket. (IE: Going into debt using leverage to buy an asset like rental property which puts money in your pocket after paying the mortgage, taxes, management, and maintenance is good debt. The tenant pays the debt down, and you get the asset, plus a little(or a lot) of spending money each month. Plus, you get the appreciation(If there is any). Bad debt would be taking out a credit card to take a vacation. This only takes money out of your pocket, and for a long time.(Thanks to interest payments.)

GOOD NEWS

There is always a good perspective that can be sought out. With all of this stuff going on, there is an abundance of opportunity. With all of the depreciation that is going on, there is a huge opportunity to acquire assets(something that puts money in your pocket) at rock bottom prices. This won’t last forever. The Fed will find a way to create inflation(sounds like they’re already working on this). When inflation hits(and it’s inevitable), savers will become losers and debtors will win.

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5 comments on “Competition Towards Disaster

  1. Money creation will always overwhelm the very instrument used to create it.
    The pattern is at first a very sharp deflation of real asset prices and then an
    extreme inflation of all prices which, in the end, requires issuing a new currency.

  2. I think we are on the very edge of currency destruction. Most people see deflation, but I see hyper-inflation over the next 3 years which will be the end of the dollar’s value. The Fed is printing money like crazy right now; just wait until the banks release all of that fiat currency into the monetary system… game over. Although, not “game over” for those who are using debt to purchase assets like income-producing real estate. It’s a wonderful hedge against inflation!

  3. A lot of good points, but no history how we got there. Basically we, following gov’t econs, that US prices would be kept down by importing low value added products, eg. clothing,shoes,toys, and make the high end stuff, auto,computers,TVs. Then we were shown that low end manf autos,TV,calculators could be made by the same countries and we would have low prices and keep the high paying jobs. This was called the move to “future” post-industrial society. Dirty jobs overseas, “clean” jobs here. But the service jobs did not turn out to be all computer programer, engineering inventors, financial planner for all workers. Most were food service, mall sales, telemarketers, etc. Now we borrow to maintain the consumer lifestyle that makes up 70% of GDP. We can’t make more money working more hours, too many others willing to do so for less. The high pay job?, turns out internet allows engineering, inventing, finance can also be sent overseas. So the solution? lower our costs to compete, by lowering our dollar value. Also allows Gov’t debt to be paid with cheaper dollars. The bad? all that cheap imports go up in price, eg. oil, gas, TVs, food( because the fertilizer, etc, goes up) I propose a tariff on countries that import here and don’t buy from us. We use the money to help workers hurt by their policies. Free trade is not free!

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