Savings, Investing & Inflation: The Holy Trinity?

A 2% annual inflation rate over a period of 50 years would be twice as good as the actual inflation rate since 1960 to 2010. For those that started saving in 1960, their savings for each dollar saved in 1960, would have to have grown to $7.37 because the annualized inflation rate over that 50 year period, calculated by the Bureau of Labor Statistics and based on the Consumer Price Index (CPI) was 4.07%. Over the last 5 years, 2005-2010, $1.12 would maintain the purchasing power of $1.00 in 2005. A little less than 1/8 of a dollar to make up for. But as you trace our inflation back to 1960, the spread widens. 2000-2010 $1.27; 1990-2010 $1.67; 1980-2010 $2.65; 1970-2010 $5.62 and 1960-2010 $7.37!

I am not advocating for deflation, nor am I advocating for zero inflation, but inflation eats away at savings and is a deterrent from saving money. Many people realize, as do large pension funds, foundations, endowments and other large pools of money, that savings accounts over a long period of time will not maintain the purchasing power of the dollar to meet their obligations. As a result, these large pools of cash turn to the capital markets to invest. So far so good.

But, I have a problem with the game after those dollars are put to work in the capital markets. The SEC has been weakened to the point that abuses of the laws governing the investment industry become all to common. Madoff was just one example of a system that needs repair badly. Personally, I don't understand why the public pension funds around the country have not put more pressure upon Congress and the SEC to level the playing field as millions of people's pensions are affected by the crimes that are committed on Wall Street.

Stay tuned.

Monetary Policy & 2% Inflation: For Whose Benefit?

Monetary policy is controlled by the Federal Reserve Bank. Our central bank, The Fed, has a number of tools in its tool box to either control or influence the growth of the money supply. (Just forget about monetary base, M1, M2 and M3.)

Yesterday on a TV news show, I heard someone say that The Fed fears deflation and would like to see 2% annual INFLATION in the United States. Now, I would like everyone to read that sentence again. The Fed would like to avoid deflation, and at the same time, The Fed would like us to experience 2% inflation in the coming year. Why? Because they fear a slowing in the economic recovery.

My question is: What if you are a wage earner and you don't care to use leverage (borrow money), but would like to live in a country with, say 1/10th of 1% inflation every 5 years. At that low rate of inflation, it would make sense to save your money in a savings account because the purchasing power of the dollar would remain intact. Think about a monetary policy that would be geared to the needs of the savers rather than the needs of the borrowers.

In such a monetary environment, investing in the capital markets, the stock market, would be a choice, not a necessity. As a result, large pension funds would find a level playing field in order to attract their funds for equity investments.

The bankers and corporations would not like this kind of monetary policy. Half of the fun of using leverage is to be able to pay off your debt with inflated dollars.

Now, perhaps, those of you who have been reading MONEYTHOUGHTS over the last few years will understand why I do not like the way our Federal Reserve Bank runs monetary policy. I fully understand that The Fed is charged with helping the growth of our Gross Domestic Product (GDP), but should it be at the expense of all those people that work as wage earners and see their savings erode over the years from inflation?

A 2% annual inflation rate calculated over 50 years means that saving your money for retirement is pointless. You and everyone else in this boat are literally forced by the reality of our monetary policy to invest in the capital markets if you are going to have anything for your retirement.

If investing for ones retirement is the only sane game in town, then should it not follow that the investor, public pension funds and individuals, have a level playing field. Should not the SEC protect the investor against unethical brokers, dealers, underwriters and credit rating agencies?

Stay tuned.

Credit Ratings & The Political-Economy 2010

We are having a heat wave in Cincinnati, and my brain is just about fried. Temperatures range from the mid 70s (night) to the high 90s (day) and are expected to hang on for several days. I have been working on getting 4 paintings ready for the juried art show at the Clifton Art Center. I must submit the actual works next week. No photographs this time, I must deliver the artwork with labels for the judges to examine. The 4 paintings are all in acrylic paint, with one from The Envelope Collection - Level Playing Field Out The Window.

Over the last 2 plus years, I have written about the political-economy and my belief in the need for a level playing field in order for our economy to run efficiently. In our economic system, the movement or flow of capital to those that wish to borrow from those that have funds to invest, permits the economy to grow and flourish. Whether it is a person buying a car or a corporation issuing a corporate bond issue, it is important that capital can flow to those that need or want to borrow. Credit ratings are a devise that permits the lender to assess the quality of the loan. Securitization permits many small loans, like mortgages, car loans and credit card debt to be bundled and sold in the capital markets to an assortment of investors. Pension funds, endowments, foundations, insurance companies and mutual funds can invest in securitized loans, and these bonds can then be bought and sold around the world. BUT, without credit ratings that have integrity, the movement of capital from lender to borrower is stymied.

All I have been writing about, is our need to have a credit rating system that has no conflict of interest between the underwriters and the credit rating agencies. It can't be any simpler. The thing, in my opinion, that is holding back the growth of our economy and putting people back to work in the private sector, is the problem of confidence in the system of credit in our country. Our bond market is the world's bond market and while there is money out there looking for fixed income instruments to invest, no one wants to buy a pig in a poke.

Stay tuned.

Level Playing Field Out The Window, acrylic on paper envelope, by: F.D. Zigler.

August: Too Hot To Argue About The Political-Economy

This is August. A time in Cincinnati when it is almost too hot to think, and certainly too hot to argue about the political-economy. I am working on a few paintings, and having fun in the knowledge that I don't know what I am doing, but boy is it fun trying. There is a juried art show coming up towards the end of the month that I can enter 4 paintings for $25. As they said on Central Avenue in the late 40's, "such a deal." Entering and having one or more of your paintings accepted are two different things. What the painter thinks is good, the judge(s) may not agree. I am going to enter 4 paintings that I would place in the political satire genre. What if the judge(s) does not think paintings should deal with politics in the 21st century? What if the judge is a Minimalist. If that be the case, I guess I might not be in this show. On the other hand, if the judge(s) sees a connection between my work and the history of icons and images from an earlier period in western art, then perhaps if my execution isn't too bad, I might find a painting or two accepted for the show. So, if I am not writing something on my blog, then perhaps I am painting or playing golf or selling my Ski Cincinnati t-shirts, the sponsor of this blog. Fall and cooler weather is just around the corner, and then before you know it, it will be time for my 50th high school reunion.

Stay tuned.

Saturday Is For Art: 2 Paintings In Progress

Here are 2 paintings in progress. That means they aren't finished. I have more to do. The first painting is political satire and I am calling it Washington, D.C. - Its All Politics. The second painting is of sunflowers from the side of my house, with a piece of the house in the background. Both of these paintings are on half inch MDO plywood that I cut on my table saw. Then I nailed them into the window frame and gave them a coat or two of gesso front and back. I like to recycle old windows and use the wood frames for my paintings.

You Don't Have To Be President Einstein to See That

Unfortunately for President Obama and the nation, he is listening to the wrong people when it comes to economic advice. Larry Summers should leave not Christina Romer. Tim Geithner ain't much better. The old boys' club is hard to beat. Change comes hard especially when it means that the protected few might not be able to call all the shots. Well, it is Washington, D.C. and D.C. means politics. Girls will have to get tougher if they want their points of view heard and listened to.

Unfortunately, President Obama is listening to Wall Street types too much. I know he gets plenty of campaign funds from Wall Street, but there is more to this nation's economy than Wall Street. The same men that got us into this bind are now the same men that are trying to lead us out of this recession. These guys look out for themselves, not the nation. You don't have to be President Einstein to see that President Obama.

Stay tuned.

Santa Monica Pier, CA

Dick Cheney hanging out at Santa Monica Pier photo No. 1. Batman protecting the people at Santa Monica Beach from Darth Vader.