Got A Stamp?

Monday and a new week begins. Inflation is back in the news again after taking a back seat to other economic problems. The credit crisis is still with us as is those darn credit swaps that we are all wrapped up in. Just kidding. I know you are not out there involved in the credit swap mess. Gas and diesel fuel is still a problem as truckers are having a difficult time making it with the price of diesel. The housing crisis is also still with us and from what I read, the problems are actually starting to reach the wealthy. Solutions can not be far behind if that is the case.

Inflation is an interesting concept. There are several ways to approach a discussion of inflation. There is the Cost of Living Index, but that does not take into account the increases in the cost of energy or food. There are political reasons for this narrow definition that involves COLA (cost of living adjustments). Then there is the Consumer Price Index (CPI) and the Producer Price Index (PPI), both of which are closely watched by Wall Street for signs of an increase in the rate of inflation. Remember, inflation increases a business’ cost of service or production. If a business can not pass their increased cost along to the consumer, the profit margins of the company are squeezed and the earnings of the company go down. Since stocks sell at a price/earnings ratio, lower earnings mean a lower valuation for the stock. This translates into a lower stock price. It is my opinion that it is the sudden rate of increase that is most up setting to an economy, not the increase.

I think we could have handled $4 a gallon gas if the price of gas had increased over the years, say since 1973, the year of the first oil embargo, in a straight and continuous line. Now, I know commodity prices do not move in a straight and continuous line, because if they did, they would probably not be a commodity.

Let us take a look at the cost to mail a first-class letter. One piece of paper in an envelope with a stamp, nothing fancy, keep it simple. On July 6, 1932, it cost 3 cents to mail a letter, and the 3 cent price remained until August 1, 1958 when the price moved up to 4 cents. By January 7, 1963, the price to mail a first-class letter became 5 cents. On January 7, 1968, the first-class stamp was now 6 cents. The cost to post a first-class letter continued to go up: 1972 8 cents, 1974 10 cents, 1975 13 cents, 1978 15 cents, 1981 20 cents, 1985 22 cents, 1988 25 cents, 1991 29 cents, 1995 32 cents, 1999 33 cents, 2001 34 cents, 2002 37 cents, 2006 39 cents, 2007 41 cents and May 12, 2008 42 cents.

I think most people would agree that this steady increase in the cost of posting a first-class letter, while no one likes it, does not hit us all at once. Personally, I still have an affection for stamps and buy them at my local post office and use stamps to pay my bills. I told the lady at the Northside Post Office that when the price of a first-class stamp gets to $1.00, I will find another way to pay my bills. Could the price of a first-class stamp double in the next few years? It is possible.

In 1981, a first-class stamp was 20 cents and by 1985 it was 22 cents. Now in 2008 the price to post a first-class letter is 42 cents. That is more than a double since 1981.

So, what is the point? Inflation is part of life in the United States. The way monetary and fiscal policy is run, inflation is something everyone must deal with. Those that deal with inflation successfully will survive and those that do not deal with inflation successfully will suffer and perhaps not even survive.

I believe that both the government and the Federal Reserve Bank could, if they wanted to, do a better job with holding down the rate of inflation. In 1998, it cost 32 cents to mail a letter. Within 10 years, the price increased to 42 cents, a 10 cent increase. The percent increase in the last 10 years is 31.25%. If over the next 10 years the price to purchase a first-class stamp only increases by 31.25%, the price of that stamp in 2018 will be 55 cents.

Monetary policy is important. The way monetary policy is administered in the United States affects us all and it even affects those countries and people doing business with us. For far too long monetary policy and the discussion of monetary policy has been limited to too few people. It is time for monetary policy and a discussion of our monetary policy come out of the closet. The well being of millions of poor and elderly people is at stake. Stay Tuned.