What if I told you that it is because of policies that cause us, as a nation, to run huge deficits, that there is such a huge emphasis on Wall Street, and in fact, on Main Street, to take more risk with our investments. The growth of investment products, such as hedge funds, happens for a reason. People and institutions feel the need to take more risk to grow their investment portfolios as a hedge against inflation.
If monetary policy, as implemented by the Federal Reserve Bank, is concerned with being the “custodian of the nation’s money”, then why is saving our money in a savings account in a bank a losing proposition? No doubt you have read in a newspaper or heard on TV about the low savings rate in the United States for many years. The argument is often presented that Americans spend too much and save too little. Consumption does drive the economy, and I think we can all agree upon that. But, what about savings? Is putting your money into a savings account a sound way to save for your retirement or your children’s college education?
Inflation destroys the incentive to save. Anyone that has been an adult through the 1960s and 1970s, and lived in the United States, knows what inflation can do to the purchasing power of their money. For example, anyone that bought a home in the ‘60s or ‘70s has seen the price of that home rise in value with inflation over those many years.
Why does our nation, on the one hand talk about how people need to save and not consume so much, while on the other hand see its currency lose purchasing power almost every year?
It is my opinion, that it is because of politics and policies regarding spending that does not take into account the detrimental effects that deficit spending has on our currency, the growth rate of the money supply, and ultimately the high degree of risk which is taken in investing, which is thrust upon those with the responsibility to hedge against the inflation that eats away at the purchasing power of our money each year.
As I doubt that national policies with regards to deficit spending is going to change, as both political parties spend money on their pet projects, it is my argument that if inflation is a fact of life in the United States, then it is imperative that regulation, oversight and transparency be present to protect the investor from the greed of Wall Street. As anyone with half a brain, me included, can see from history, that putting money into a savings account is no way to save and protect the purchasing power of their money over the long term. Then it is up to government and government regulations to be the firm hand to protect the American worker/investor against investment fraud. When that protection is dismantled and taken away, a financial crisis occurs and the bond market meltdown of toxic assets is the result.
When enough Americans wake up to how the game is played and how the game is deliberately broken to enhance the greed of the few, then real regulation will take place. Until then, we can expect more of the same and for history to repeat itself.
Stay tuned.
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6 comments:
You're right. presented in those terms and in that fashion - you are absolutely right. and there doesn't appear to be any different way to see it, either.
Now Lou, that is two of us. Another 50 million Americans see it that way, and we can make some changes. What is it? "Nothing can hold back an idea whose time has come." If I could get a few million Americans to recognize why given the present set up, the little guy, like you and me, are being dealt from the bottom of the deck, then maybe change can be around the corner. People must recognize what has been done to them before change can take place. Our Congress lives in another world, and they don't deal with the things you and I have to deal with.
I will keep writing if only one person reads what I have to say. Some day, perhaps, we can see more Americans understand what I wrote as you have.
What worries me.....
We usually regard that the general concensus (or majority opinion) is always correct.
But, our society is based on an experiment.
As an example, over the last 15-20 years(actually a lot longer), Americans have loved big cars and have purchased these vehicles (probably to make a statement). But logic really tells us that vehicles are meant to get from point A to B and therefore, should be as efficient as possible. Perhaps we should have had a leader that was able to inform the populace that big cars were not efficient and a detriment to our long-term goals as a society. So...., the masses were wrong.
So, just maybe, our society evolves ever so slowly and then we respond, eventually, to mistakes that have been made. But what if another form of soceity intervenes in the meantime and we no longer have time to respond to mistakes. Are we seeing this happen now????
I work with young people on a daily basis. The pessimism about our future and especially concerning investing, is deeply ingrained in these young minds. The concensus nows seems to be that only lieing, cheating, dishonesty will get you ahead.
What is really disconcerting, is that they tend to believe that nothing will ever be done to level the playing field.
We see this on a regular basis in sports......someone has done drugs, steroids, etc. It's reported, they are told to stop....and then everything is back to normal...they get a new $$ million dollar contract and life goes on.
CEO's can drive a company into the ground, lose money for every shareholder, lie about finances, walk away with millions every year.....and the employee at the bottom is fired for missing a day of work (maybe to take care of a child). (In our state, an employee can also be fired "at will").
We need a nation of "moneythought" individuals. As far as I am concerned, I don't need multimillionaires (Congressmen) telling me how to live. We'll probably continue to muddle until a worlwide cataclysmic event occurs. What do we tell the young ones in the meantime?????
Winslow, as usual, great comments. Some of them could be developed in to an magazine article if not a whole book. When people lose faith in the concept of a level playing field, cheating becomes a serious problem. The game or the markets will not operate because the system has failed to protect and enforce the rules, because more cheating takes place. I don't look for those in a position to speak up to speak up because they are "paid" to keep their mouths shut. Until they stop us bloggers from telling people what they need to hear and know about, we that blog and write comments will be the only ones pointing the way towards the truth. As I said earlier, as long as one person reads my blog, I will continue to write my opinions and raise questions for all of us to think about. I have been thinking up things to think about for a long time.
People who own homes think of their houses as their savings.
When I was a kid, savings was in the bank and the house was where one lived.
Now, bank interest has been almost nothing, stocks dubious, but houses and land kept going up, until the last one or two years.
This has created a big distortion in the economy. Here on the west coast, in Bellingham, WA. we see this situation as we are a popular retirement city.
Houses went up so fast in value that people could retire early by just moving into a slightly smaller house and banking the difference.
This windfall created grass routes support for the situation as so many ordinary folks benefited.
I've met quite a few folks who think retiring at age 45, or 50 is normal if one cashes out some home equity.
Recently, on Yahoo news, Warren Buffet was quoted in an article about several things in our economy. On the subject of the credit rating agencies, he said everyone was on the bandwagon thinking housing could never go wrong. If the credit rating agencies had tried to put the breaks on things then (by giving those mortgage backed bonds lower ratings), they would have been hauled before Congress and ask why they were deflating the economy.
http://finance.yahoo.com/insurance/article/107029/Business-Musings-From-Woodstock-for-Capitalistshttp://finance.yahoo.com/insurance/article/107029/Business-Musings-From-Woodstock-for-Capitalists
Spiraling house values kept lots of the economy going from realters to construction firms to home and bath supply stores.
It was not creating much long term or sustainable good for the economy, however.
I once jokingly said that our local economy in Bellingham was based on home equity loans. This could have explained why local retailing remained strong even after many of our export industries closed shop.
What does America, and or Bellingham manufacture?
Answer is home equity. Not even houses, just rising equity.
Technology created new forms of wealth also, like Facebook. Wealth can be defined in many ways.
In my opinion, much of the technology is like real wealth, but so much emphasis on house values as wealth does little for the economy. It just makes living in USA more expensive for those who didn't "buy in" early.
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