Thursday, February 05, 2009
I hear many of my friends talking about inflation or hyper-inflation with Obama.
Actually this may be a good thing for those of us on the bottom. Assets < $1m basically. It will push some things down relative to others. So things of constant price, like that written into a contract are in effect reduced in price. Like Rental Agreements and the salaries of those still employed. In the mean time, it's effectively cheaper to hire new people at the same old wages. Decreasing unemployment. But more importantly I think new salaries and home values will rise quickly. While at the same time those worthless notes that all the banks sold are in US Dollars, and so they will in effect become more valuable as housing prices rise in dollars, but the value of the Dollar will sink to compensate. So in effect the foreign investors will only see a slight gain, relative to there local currency but a large gain in dollars. This could also help to stabilize global markets. The really problem is throttling the inflation. It's like going down a steep hill in go cart. With breaks and under control it's great, a little exciting ducking and diving obstacles. Inflation is the same way, it become a chain reaction if left unchecked. Basically going down a steep hill with no breaks. It's quite a different experience. The key is to run at 4 to 6% a year. This seems to be the proper level and about average for the past 100 years or so. I think undershooting is as bad as overshooting on inflation. But I think we will need even more then 10% a year, but if we over shoot too far all hell could break loose. The people that really get hurt with inflation are those holding on to cash or committed in a fixed dollars agreement. Um, like banks and dumb investors..... Even those sitting on gold will probably miss out because as real estate and other commodities inflate some will inflate faster then the dollar drops, and so will increase in relative value over gold. Interestingly now is the time to buy up those real estate bonds at 50 cents on the dollar before inflation kicks in restoring home values. I don't know about you, but I am really look forward to some inflation. The early 80's was a wild time if you remember, 15% inflation. 18% interest on home loans, credit card interest seemed reasonable and savings accounts paid out 9% interest at the local Savings and Loan. For those to young to rememeber, it's a type of small bank now on the endangers species list that was wipped out in the thousands by John Mc Cain and his buddies.
The first CPU chips just hit the market. Apple, Commodore, Tandy, Atari all burst into existence at that time, US startup's where thriving.
Well we all came down from that one without too much of a hang over, not like in the roaring 20's.
But look back at the history. The good times, flooded with progress and creativity where in inflationary periods.