Robert made an interesting comment about my post yesterday about inflation. Yes, inflation can be a difficult thing to analyze. It is true that electronic prices have come down as the price of chips and other electronic parts that are mass produced flood the market. Then we have the forces of supply and demand at work. Car prices can be a bit more difficult as no one would suggest that a 2009 Ford Mustang is the same car that Ford built in 1969, 40 years ago. Automotive engineering, over 40 years, has certainly produced a safer and better car on so many levels. Would it make sense that the two cars, collector value not withstanding, be priced the same. Economists can also measure inflation by using a "basket" of items. The Federal Government uses what they call a "C.O.L.A.", cost of living adjustment. The COLA is used to adjust for inflation as the Federal Government raises benefit checks periodically.
But, the basic point I was trying to make is that inflation that results from inflating the currency year after year has driven home values up, real estate up and wages up. But, what about the savings rate? Who wants to save money if their money is losing purchasing power every year they hold it in a savings account that is paying a low interest rate? (Remember the Federal Reserve Bank can put more reserves in the banking system to keep interest rate down and thus encourage borrowing which propels the economy.) The incentive is to borrow and pay back the loan with inflated dollars. My question is: if this is the way our economy is going to be run, (monetary and fiscal policy), and people's savings are going to be eaten up by inflation, then the only option left is to invest in the capital markets. For giant pension funds, there really is no other option. Yes, they can buy commercial real estate, forestry lands, private equity funds, etc., but they must, by necessity, keep money invested in marketable securities that trade on a regular basis. Whether these securities are U.S. Treasury bills, notes or bonds, or common stock on or off an exchange (NYSE), the fact remains that large state and private pension funds must be able to liquidate their assets to raise cash, and actively manage their portfolios.
The Federal Government needs to take an interest in the shape of the playing field that these transactions are taking place upon. What percent of the American population, whether in a pension fund or 401-k, is invested in our capital markets? I do not think we need to count the number of families that have their retirement tied to our capital markets through retirement accounts. Yet, where is the march on Washington protesting the failure of Congress to protect the American people against the financial terrorists that bombed almost every family's financial security? There should be at least 100 million Americans up in arms about this.
Stay tuned.
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8 comments:
I'll march! Tell me when.
Why aren't there 100 million Americans up in arms? There probably are -- we just haven't joined forces YET.
One possible reason: For years now, I've had this haunting vision that America has become Imperial Rome. Though not a history major, I do recall reading that the Roman Circus was designed to take the people's minds off the real issues and keep them entertained with bloodlust. Our modern Media appears to provide the same kind of diversionary entertainment. Not that this excuses us, but it does use up an awful lot of energy that could be better spent in the service of protecting and maintaining our democracy. Causes me to wonder about what powers lurk behind the throne.
How do we achieve critical mass for this agenda when there are so many other competing agendas?
I'm still stuck on Taibbi's article, and still experiencing shock and awe, but at the same time, truly grateful that his voice has been heard. Having been heard, what ripple effects might his words have, and how long will it take to galvanize people to act?
Do we get on his bandwagon? Will that take us where we want to go?
I'm a novice, so I want to listen to what more learned minds have to say.
Thank you.
Summer
Goldman is just one of several. They might be "The Great White" of Wall Street sharks, but there are others out there too.
As for circuses, we have professional sports, live and on TV, that provide some people with a distraction.
The purpose of the capital markets is to raise money so businesses can grow. Private equity is the seed money. Publicly traded securities make it possible for investors around the world to put their cash to work. There is going to be a Senate investigation of the practices and the bailout of Goldman and others. Perhaps the evidence of wrong doing will be so overwhelming that Congress will be too afraid to ignore it. They understand the voters' anger and what that translates to at the ballot box.
Interesting. You bring up inflation and saving in the same post. You use the same car with 40 yrs. of spread in time with a greater price as the years went by.
Question, with inflation in mind, thre has only been one thing that has stayed stable and it has to do with savings and investment. The simple passbook account. Same dividend rate today as when I was a kid. My little passbook helped with college and my first '61 VW. Can't do that today.
Those 'financial terrorists' were just exploiting the system - a flawed system whose flaws were exacerbated by less and less regulation and little or no oversight. But who do you blame? Whose house do you stand in front of to protest? Milton Friedman's? He's dead - though his insights and policies led us to this ruin. FDR? He's dead, as well - though his administration is the one that wired the economy with dynamite when they gave the CRA's the effect of law. The last 30 years of Presidents? Some of them are dead - and the one's still alive weren't smart enough to recognized the slippery slope we were on - and we've never been a country to crucify someone just because they're stupid. So where do we take the protests - that they would be heard and make a difference?
We've always believed that the U.S. was in a strong position because it was so diverse. Perhaps the tide is changing and the U.S. is now TOO diverse. There are so many problems to be solved, one cannot get the masses dedicated to one particular issue.
Bill Gross of Pimco stated recently, the Chinese may be the world leaders in the future because the future will require authoritarian decisions.
I believe the recent inflation in housing was purely speculative. It was obvious to me and I thought the government should have put restrictions on the crazy lending practices. I think the politians were fearful of stopping the boom. Now, of course, we are all suffering.
I now see speculators/investors buying the majority of foreclosed homes...how can this lead to anything good?
just one more thought.....
I've always believed that every law in this country should be examined on how it affects the AVERAGE MIDDLE CLASS citizen. Either change or modify the law to the benefit of this class.
Yes, one can still make millions and millions, but, you would also have to help society move forward
We have had unusually low interest rates for years. Unusually low given the size of the federal deficit.
One would think the high debt would soak up all the excess money in capital markets, but it hasn't. Either the Federal Reserve has been printing money, or other countries are sending their money to us, or both.
The low interest rates have lead to inflation in housing values and other things. Also leads to low savings rate.
Low interest rates were justified, in part, to boost employment. Maybe we would be better off not trying so hard to boost employment, but instead sharing the jobs better. We could use a trend toward shorter workweeks and less consumption. Higher interest rates could slow the economy and it might not be bad if the workweek was less and the work spread around to more people.
Sometimes, I feel like we build extra strip malls that we don't need just to create jobs. It's kind of like running on a treadmill. Maybe the economy should slow down a bit. Maybe overall quality of life could improve.
Bottom line is, interest rates have probably been too low. People have been encouraged to go too far into debt and some property values have been pushed too high.
We could all use a bit more relaxation for both ourselves and the environment.
I'm not for going back to the stone age, however. Technology is likely to march forward anyway. That's almost inevitable even if we don't work ourselves to death on the inflating treadmill.
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