Might be longer unless the quantity can turn the numbers around. Note figures in lower right.
From IBD:
Posted on 03/21/2009 11:27:06 PM PDT by Scanian
The Fed's announcement last week to flood the financial markets with $1.2 trillion in new money stunned many. True, governments often print money as a cheap way to buy off their debt. Governments also find that instead of paying off their debt they can simply reduce the value of the currency so much that earlier debts are not worth anything. But the shear size of the current change to the world's preeminent currency is unprecedented.
More money means that each dollar falls in value and can purchase less than it did previously. Think of it this way: If the number of apples suddenly doubled tomorrow, what would happen to the price of each apple? It would fall. Same with dollars, whether American or Zimbabwean, where the current inflation rate is 230 million percent annually.
The size of this $1.2 trillion increase is breathtaking, and the U.S. monetary base has already more than doubled so far, from $800 billion to $1.7 trillion. One normally needs a microscope to see past yearly changes in the money base, and the current change already jumps off of any chart - look at the one on the right from the St. Louis Federal Reserve Bank showing the blastoff. As the chart illustrates, even before the last infusion of money, we have already seen a huge increase in the money supply (M1) this year.
Devaluating our currency and our debt is a dangerous game.
(Excerpt) Read more at washingtontimes.com ...
What are some practical ways of surviving this?
Buy gold and silver; but only after buying several months to a year’s worth of food, to protect yourself against rising food prices. Buy an extra freezer, fill it up now while it is cheaper.
If you have any adjustable-rate loans, refinance them at fixed rates. At fixed rates you can pay them off with increasingly worthless dollars, and your creditors will be the ones to suffer. With adjustable rates, your payments keep up with the rising prices.
It is good to be in debt if you have a job where the pay will keep up with inflation.
You pay that debt back with inflated dollars.
Of course loan interest rates are going to sky rocket as a result. And all those people that can barely pay their variable rate mortgages now are going to crash and burn as a result...
Stupid is as stupid does...
It is hard to explain why the ten year t bonds are 2.6%. I do not understand why bond traders do not expect inflation.
I don’t either, and I trade bonds (day trader though; I don’t make any long-term plays).
Dollars are what will be devalued. This destroys savings and debt...it’s a giant wealth transfer from those who save to those who owe. You could max out your credit cards and become a deadbeat (and when everyone does this you have a failed socialist banana republic).
As for the more “honest” way to deal with it, refinancing to a very low interest mortgage is a big one. You can also convert your savings from dollars into things that won’t lose value.
You want things that are durable, necessary, easily divisible, not too bulky, not easy to replace. Gold tops the list. A stock of non-perishable food like rice is a good idea, as are bullets (.22, 9mm, .45, .40...nothing obscure).
If you don’t have much in the way of tools, go grab a nice complete set from Craftsman. Materials and manufacturing will only push the price up, and having the stuff to do household & automotive repairs will be worth it.
This is one of the most instructive times for me since I read “A Monetary History of the US” decades ago. All throughout the 1930s the FED worried about inflation when in fact we were going through deflation. They worried about bank excess reserves and in 1937 raised required reserve ratios killing off the 1933 to 1937 recovery.
I often wondered how it could be in the middle of a depression when the price level had declined 24% from 1929 to 1933, the FED could be so silly as to be worrying about inflation I guess I understand now. The uncertainty makes everyone nervous. While we are not in a 1930s style depression, the FED certainly needs to be sure that neither the money suppy nor the price level decline. Monetary easing may help the economy from heading further south.
It does risk inflation. If you believe that inflation is going to turn upward in a very serious way, the way for you to “survive” it is to conver to tangible assets like houses, gold, artwork, cars or stocking up on can goods. Certainly you can see that Obama might be well served by inflation if it helped out the car and housing markets.
I told my husband the other day that a good investment would be a bigger freezer. We have a box freezer in the garage, but it’s usually filled with fish, no room for other things. Freezers are cheap (comparatively) and I’m going to start shopping for a larger one.
Here’s the thing about freezers though, if you live anywhere near hurricane country (which we do) make sure you have a generator to run the freezer should you lose electricity.
In the short term, the Treasury can print money and buy lots of bonds. That raises the bonds' price and lowers rates. Eventually the money that is injected into the economy starts to get multiplied via lending and compete with pre-existing money and credit for goods. Inflation ensues. At that point, interest rates start to go rise.
Rising interest rates mean that bond prices will fall, but with a delay. The Fed can fight this by printing more money, but then they will be the only purchasers of bonds, and the debt market will be destroyed by wholesale bond dumping.
In other words, bond prices have to drop, and interest rates will have to rise, but only with a delay.
Personally, I think Bernanke is too smart to play this to the logical end of hyperinflation--that end game isn't going to do much for his economic reputation. I think the hope is that the Fed will be able to do two things.
First, temporarily forcing down interest rates will bring down mortgage rates and support housing prices. It will also make many of the problematic MBS's appear to be worth more. So, they are hoping for an economic multiplier here.
Second, they know this is going to be inflationary down the road. They are hoping that they can use 70's era -level inflation as their soft landing, and kick the can down the road for whipping that to some Republican in a decade or so. ("WIT" -- Whip Inflation Then?).
Of course, this is a VERY dangerous approach that could blow up. It robs all savers on the hope of saving the debtors.
.....I think Bernanke is too smart to play this to the logical end of hyperinflation.......
Rates aside, there is still the primary problem of too much money. I can see no possibility of preventing the inflation that is the salvation. The only questions are when will it start and what will be the rate.
Opt out of the economy. Go underground. Barter. Trade services for goods. Avoid all the taxes you can. Get frugal. Only buy what other people aren’t buying.
See my "second". I think the target rate is mid-teens to maybe 20 percent. Keep that up for a few years and you've seriously devalued outstanding debt.
For the inflation to pick up, you need some money velocity. It takes time for the money injections to be felt. The government has to start spending the money they've created and legislated. I think a year to 18 months is the delay estimate used by many.
My “guess” was 7% for ten years.
Seven is my view for the highest possible tolerable rate.
You're an optimist! We can start a pool.
......You’re an optimist! We can start a pool. .....
Before beginning the pool, we must set the terms. :)
Is the rate and time the actual rate or the target rate.
My 7% 10 year is considered the maximum tolerable with no revolt and is a target. others have said 20 something which I presume is estimated actual.
My family is stocking up on “hard” provisions... things we can’t grow/raise ourselves. I’m buying antibiotics for barter. I’m buying ammo for hunting and self-defense. Both of our vehicles are being worked on so they’re in the best shape possible. I’m buying an extra set of tires for both cars and storing them. We’re investing in things we’re going to need to care for our animals (when we do get them) such as iodine, buckets, needles for injections, feed bins, etc.
We’re also trying to get rid of as much debt as possible right now. If I had ANY thing invested, I’d be pulling it out now to set us up faster.
The reason it’s so important to reduce debt is that our paychecks will *not* go up as fast as inflation. If you’re living on the edge now, you’ll be pushed over very quickly.
For us, we must protect our home, our possessions, our ability to produce food, transportation and to protect our health. Everything else is secondary.
I believe that we’ll switch to a barter economy very soon. Plan on having something in bulk to trade for what you need.
Might be longer unless the quantity can turn the numbers around. Note figures in lower right.
From IBD:
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