Stephen King himself couldn't make it more horrifying. It's coming. It's going to get you. There is nothing you can do.
Forget keeping or getting rid of the Bush tax-cuts. This is the “cruelest” tax. It is inflation.
This past week, Ben Bernanke ('Head of the Fed' if you will) moved forward with a decision to drop another $600b into the bond market. That is a total of $1.6t in 52-weeks. This movement is known as “Quantitative Easing II” or “QEII”. The first stuffing, QEI, was the first stimulus package we saw about a year ago.
The markets had a party on Thursday over the Fed's monetary injection, and it was all hot air.
Wall Street can be as happy as they want, but it's going to hurt them in the long run (don't worry, they know about it this time). As inflation creeps in we are going to see our savings accounts and paychecks eaten away. Ask anyone alive during the Weimar Republic and they will tell you about how they made 1,000,000,000 Mark in a day, but it did them little good because a loaf of bread costs 500,000. Good thing we have plastic now because back then it took a barrel-full of bank notes to get that loaf. In a short span of two years the Mark went from under 100 Mark to the USD, to about 4 trillion Mark to the USD.
I'm not say that will happen here, it won't, the Weimar Republic is an extreme example of hyperinflation after London demanded their loans of gold be paid back. We do, however, have to be worried about our overall value(s).
'Hey Colin, you said that it will hurt Wall Street. How?'
I'll do a simple map for this:
Your dollar value lessens heavily >
You essentially have less money (although the amount hasn't changed) >
You have less to spend at Macy's (because sweaters are more expensive) >
M (NYSE) drops because of it
We will easily see this across the board, if something isn't done.
'You gave us an example in history, but what's happening here? What can be done?'
Don't get me wrong, a little inflation in our predicament can be a good thing. It's a matter of control. I'm concocting ideas still, have been for weeks, will polish them and write on this tomorrow.
'Why is this article on only inflation, isn't deflation a risk too?'
Absolutely. Will write on deflation next week. I've heard this week that we could be seeing up to 25% deflation from where we are now.
This is my first post, I hope you enjoyed it and got a snippet of what I wanted to put up. Any questions? Go ahead and ask. If I can't get you an efficient and effective answer, my colleague Kyle will.
Until then, watch some Charlie Rose and take care,
-Colin
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