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Inflation Nation

As you may know, I’m a big fan of inflation.  I think inflation is the best way to pay off our national debt (makes it a smaller percentage of the GDP) and the only people who really hate inflation are the people who lend you money.  They get paid back in dollars that are worth less (worthless?) than the dollars they lend you.


That’s why the Federal Reserve, a bunch of Bankers, spend day and night combating inflation.  They’re not doing it for you – you borrow money!  They are doing it to make sure that your mortgage stays at 30% of your income.  If you keep getting raises due to inflation that mortgage (and you should always have a fixed, of course) might go down to 10% of your income over time leaving you with extra money.  Extra money is the kind of thing that turns the working class into the liesure class and, despite the lip service paid to the concept, no one in power wants true upward mobility in this country.

Too much inflation leads to high interest rates which causes consumers not only to borrow less (gasp!) but to save more.  I remember a time when you got a CD that paid 12% AND a toaster for putting money in the bank!  Now you get 3% and a $1.25 fee for reviewing your statement – and they wonder why Americans save less!

You often hear that we are not a nation of savers but Americans have deposited $1.5T since 2002, bringing our people’s total savings to just under $4 Trillion, about as much as the rest of the planet combined!  While it may be a small part of our total income, it’s quite a large total income to begin with!

The joke is that we are being paid less money for our savings than at any time since 1960 so again I will point out that you are being fed a line of crap by bankers! They are holding $4T of your money and paying you 3% interest yet if you want to buy a home you must pay 7% (plus fees!).  It is also worth noting that, DESPITE  2.25% of recent Federal rate cutting by Bernanke and Co., actual lending rates on 30-year mortgages have remained at 6% – THE SAME PRICE AS THEY WERE WHEN FED FUNDS WERE AT 5.25% (now just 3%). 

The Fed Funds Rate, the rate on the money the Fed loans directly to bans, is also down 1.75% since September.  What this means is the banks are being given a huge bailout by the Fed, at taxpayer's expense and the Fed does this by dumping low rates on the economy, which jacks up the prices of things taxpayers buy every day while the banks refuse to pass those low rates down the the consumer, causing another net loss for the American people!

What had kept rates low in the past was the massive availability of cheap cash all around the World yet you will never hear it from our government (other than Ben hinting at “Global liquidity“) because they work for the guys that borrow your money and lend it back to you and they want you to think THEIR money is valuable while YOUR money is lucky to get you 3%.

The Fed's mandate is to keep inflation down at all costs: At the cost of your wages, at the cost of your home’s value, at the cost of runaway commodities, just to make sure you pay back the bank in a way that they get to maximize their inflation adjusted profits. That is our government’s policy. What would you really care if gas were $5 a gallon as long as the minimum wage was $15 an hour?  

You could afford a $1M home if you could count on a 5% raise every year to bring down your mortgage payment. Even the property tax increases wouldn’t seem so bad if your salary kept going up…

The math is simple. You take on a $4,000 a month mortgage on a $600K home and you take home $7,000 a month – it’s a struggle but you make it happen.  If you get a 7% raise every year in just 11 years you will be taking home $14,000 a month and paying the same $4,000 mortgage.  Great for you, bad for the banker who has to pay his clerk double what she made when you first came in there.  It’s also great for the economy as you have much more disposable income to spend and even the government has twice as much money to pay off old debts with.  Even if your $3,000 in living expenses also doubled in 11 years you would still be making $4,000 a month more than you need to live on.

If you had taken half of that extra $4,000 a month and invested it at 7% in the bank, you would also have $150,000 in savings tucked away.  Keeping up at this rate and by year 20 you would have saved $500,000 for your retirement with a salary of $28,000 a month in a fully paid for $2.4M home with just $12,000 of monthly living expenses.  This is why our parents seemed so smart when they bought homes in the late 60s and early 70s, it's easy to seem financially savvy when your $40,000 home goes to $300,000 in 15 years or less!

Who needs social security?  Oh the horror of inflation!!!  It’s not so terrible for the bankers, they still make plenty of money - just not the obscene amounts of money they make by rigging the system to keep inflation from eating into their profits at your expense!  It's not inflation that US citizens should be concerned about, it's LACK of wage inflation or the wage DEFLATION we've been subjected to for the past decade that does nothing more than fatten bank balance sheets and corporate profits that benefit the top 3M people at the expense of the other 297M peoples' retirement.

The lock box has been raided and Trillions of dollars have been redistributed from Social Security into tax breaks for the wealthy and there are plenty of people reading this right now who will call me unAmerican for complaining about workers rights at "the cost of freedom."  It's funny how the war profiteers don't seem to shoulder the cost of freedom, just the gullible viewers of Fox and other MSM, who are told that economic survival of the fittest is a game they should be proud to lose!


Back in '06, Nancy Pelosi mentioned “Draining the Swamp” and much was made of it regarding "throwing the bums out of Washington" but I think she may have been making a slightly different reference…  There is a book called “Draining the Swamp” that espouses the anti-fed positions of the National Economic Stabilization and Recovery Act, something that’s got to keep bankers tossing and turning at night as we watch Obama gaining in the polls!  While Obama's programs may lean a little too far to the left, clearly something needs to be done to stop this madness.

As Thomas Jefferson, once said “If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around the banks, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.

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  1. Good morning all:
    for those of you interested in real inflation open the link:

  2. Don’t see any options on this yet, may come, these are a set of new ETN’s for currencies

  3. Had to be expected ERTS down $1.43 in pre-market, sucks that I didn’t cover this 100% before the weekend… let’s see what the open brings, reviewing my plan for this position to adjust for the announced hostile bid launched for TTWO

  4. IS Greenspan trying to bring down the US economy ? His comments in the last few months have become much more “media” like and overstated pesimistic. Perhaps he’s short the market !!!

  5. Anybody else having problems signing in to Interactive Brokers?

  6. Good morning, new post is up!

    Greenspan is working for Bill Gross (bond pusher), they need doom and gloom to get people to put money into low-interest paper.

  7. Phil,

    With inflation skyrocketing are there some gold plays that would make sense for the new 25K portfolio? I have played AUY the last several months with some success.


  8. I agree that mild inflation is great for responsible people and governments (not ours) that traditionally spend less then what they earn. But for those continually spending more than their paychecks, or their tax revenues (i.e. US Government), inflation can still be a killer. No amount of inflation will allow our government to make our enormous debt manageable.

  9. Gold may correct here, not a fan at the moment. It’s less about inflation and more about dollar weakness and I won’t play the dollar to slip below 75 until I see it happen.

    Of course it’s inflation + belt tightening that’s required. There have been administrations that have cut runaway spending but they weren’t the administrations of Nixon, Ford, Reagan, Bush or Bush…