Monday, December 21, 2009

All I Want For Christmas Is A Level Playing Field

Since Christmas is near, and so many are shopping and getting in the spirit of the holiday, I am not going to bore you with a bunch of numbers. Today, I want you to think about money. The name of this blog is moneythoughts, so today I am going to talk about money.

We all understand what inflation is, right? Inflation is when our money does not buy as much goods and services as it did a few years ago. Inflation, put another way, eats up purchasing power. This is pretty straight forward and simple.

So, we might conclude that holding a lot of money, say for retirement or a child's college education, in a savings account is a good thing, but over a long period of time, with prices going up, our savings, while earning some interest, is losing ground to inflation. So, what do people do?

People invest their money. They might invest in the capital markets, also known as the stock and bond markets. They may chose to invest in almost anything they believe will increase in value. I want to talk about investing in the capital markets.

People can either buy mutual funds, or, invest in specific stocks and bonds. But if the stock market crashes, or if there is a meltdown in the bond market because the regulations of the market are too lax, or the credit rating agencies and the underwriters sell phony triple-A bonds, who pays the price? The small investor trying to hedge himself against the loss of purchasing power due to inflation pays the price.

So, I come to this point. The Federal Reserve Bank needs to be more fair in their interest to advance the economy by expanding the growth of the money supply. The Congress needs to put regulations back in place to control the bad behavior of the investment bankers. Both of these things need to be done if ordinary people are going to have a decent shot at hedging themselves against inflation. The game, the way it is run now, is totally unfair to the little investor. During this last wave of shit, some big investors got their sails trimmed too.

Congress can level the playing field. It is in their power to do it. Why do we have a rigged game with millions of people being hurt for trying to do the right thing for themselves and their families? Ask your Congressional representative the next time you see him, or pick up your phone and ask him, why do you tolerate an investment environment where so many are hurt and so few make out like bandits?

Stay tuned.


winslow said...

What a treat it would be if the politicians came out and said they will pass legislation to level the playing field. Don't hold your breath.....polititians will follow the party line, right or wrong....or they will follow special interest groups with clout.
The politicians are out of tune with the average person (and why not...they are all millionaires).

If Obama, or the Democratic party, want to regain public confidence, they had better come out with a plan to reduce the deficit.

moneythoughts said...

Winslow, I believe if enough people recognize that the savings game will not get them to where they need to be, and the investment game is rigged against them, then perhaps people will take an interest in what goes on in Congress and the Federal Reserve Bank. The way the game has been played, savers lose and investors lose too. The only people making out real well are the bankers and hedge fund managers. If I can break this down to its simple elements, perhaps we can bring about change.

Robin said...

Wow, you explained that in a way simple enough for even an economics-phobe like myself could follow. Makes so much sense when you describe it that way.

moneythoughts said...

Thanks, Robin. I am doing my best to make it simple and understandable. But, this is a very uphill fight.