Well, much to the dismay of your humble blogger, I'm back after a weekend that was a bit too short. First, I need some more followers! I have a bet going with another broker who thinks that this form of communicating with clients and other interested parties is a waste of time. I disagree. Also, feel free to disagree with me about ANYTHING. Post your disagreement. I absolutely believe in the respectful exchange of ideas. I firmly believe that our society has somehow lost the ability to respectfully disagree and debate and that this loss directly corresponds to many of the issues and hardships we are currently facing. So, fire away!
Ok, now to the topic of the night. INFLATION. I am sure everyone, at some point, has heard this word thrown around in the last year. This is a huge topic and I will be addressing it all week. Tonight, I would like to simply address the term itself. Somehow, logic and simple observation have elluded many conversations concerning inflation. In the last 20 years, we have seen the rise of the Keynesian economist. Keynesian economics have been around for a long time but just recently have been adopted as gospel. Keynesian economics can be summed up as the belief that a centralized bank within an economy can control that particular economy through the tightening and loosening of the money supply. Ok. That's a mouthful. Essentially, this means that through raising interest rates (monetary tightening), lowering interest rates and spending endlessly (monetary loosening), Keynesians believe that they can stimulate the economy and keep it on the right track. The reason I'm explaining Keynesian economics is that many of our current policies and definitions are put into place by this ideology. Inflation, for instance, is defined accurately as a particular currency losing it's intrinsic and perceived value. More simply, the dollar buys us less and less as time goes on. However, Keynesians use a strange sort of math to determine the level of inflation and firmly believe that there must be growth in an economy to have inflation. So, despite our government spending ungodly amounts of money, Keynesians believe that inflation is not something to worry about because our economy is not growing much at all. I laugh at this notion. This is as ridiculous as telling a starving man with a loaf of bread that all he has to do is cut each slice of the loaf in half and he will have twice as much food, easily satisfying his hunger. We don't need growth or high employment to realize inflation. If we keep printing money, or cutting that slice of bread in half, our currency will keep losing value. Doesn't that seem logical? This is actually magnified in a global economy because we are forced to exchange currencies with other countries. Countries that have remained fiscally responsible throughout this downturn are going to want to see our fiscal frivolity reflected in exchange rates. Since we are printing dough and they aren't, they want more of our printed dough in exchange for their goods. Another ridiculous aspect of this economic ideology is the manor in which they calculate inflation. Keynesian's do not include the price of food or fuel in their inflation calculation! That means that we could be paying 7 bucks a gallon and 9 bucks for a loaf of bread and that doesn't necessarily mean we have inflation!! I'm not sure any other type of inflation matters! To make matters worse, the job market isn't exactly rockin. I think we could all agree that the economy is a bit stagnant these days. This slower economy makes it increasingly difficult to earn a higher wage in order to combat this inflation. That means more expensive goods and the same old pay check. I don't know about you but I'm already feeling it in the family budget.
Now, I am going to talk at greater length tomorrow about the price of gold and whether or not it remains a good investment. However, with the logic laid out above, $1400 gold seems a bit more realistic. We can all agree that every action has an opposite and equal reaction. When you print and spend as massively as we are, what is that reaction? Well, things like gold, which are measured in US dollars, would have to reflect this printing or action, wouldn't they? Oil is also priced throughout the world in dollars. Filled up your tank lately? How about groceries? Did you realize that sugar and wheat are at historic highs? Did you know that one of the major cereal companies (forgot which one) recently raised their prices 5% across the board? What you will continue to see is that any asset that is priced in US dollars will continue to rise in price.
Well, we have clearly defined inflation and the problem that it's causing. Now, how do we protect ourselves? How do we profit from inflation? I will address that in the next post. Thanks for reading.
Zach
No comments:
Post a Comment