It’s Inflation Week at Len Penzo dot Com. Follow me over the next several days as I explore the multiple facets and facts about this insidious scourge, the probability of its resurgence, its potential impacts on us, and strategies for protecting yourself and your personal finances. Hey, it’s not as fun as Shark Week at the Discovery Channel, but it’s almost as scary! 😉
Raising taxes to pay for excessive government spending is never popular with the general electorate. As a result, printing money is how our spineless government leaders try to buy time so they can prolong their political careers. It’s a cowardly way to avoid making the tough decisions that need to be made in the face of deficit spending and, left unchecked, its primary effect over time is a high inflation rate.
The US government is currently indebted to the tune of approximately $11 trillion. Amazingly, that doesn’t account for the $49 trillion of Medicare and Social Security entitlement liabilities which will need to be paid off in the future. The United States Treasury Department doesn’t use these entitlements when calculating their debt to GDP ratio, but if they did it would be 680%! This partly explains why entitlements are not included in the calculations; if they were it would become painfully obvious that the country is basically insolvent.
As long as the dollar remains the world’s reserve currency, the US may just be able to avoid the worst effects of inflation. However, the dollars reputation as a safe haven continues to be chipped away with each new government bailout and socialist spending program that is implemented by our leaders.
It is no secret that Ben Bernanke and the Fed plan to minimize all of this God-awful debt by surreptitiously devaluing the dollar over time. Therefore the United States will continue to print money to cover their profligate spending while the fiscally responsible among us who are not saddled by excessive personal debt will continue to pray that hyperinflation continues to stay away.
Unfortunately, this tactic ends up emulating one of communism’s principle tenants — redistribution of wealth. By indirectly devaluing the dollar via inflation, the Fed will forcefully transfer the wealth of those who have managed to save responsibly over the years to those who have lived well beyond their means. Talk about sowing the seeds of public discontent!
Can you imagine the rage that would foment in those of us who watched the value of our retirement and other savings accounts wither to nothing in order to pay for the bills of those who mortgaged the farm to live way beyond their means? Meanwhile many who bought more home than they could reasonably afford, only to be bailed out by the taxpayers, will still have their McMansions. That, people, is how revolutions get started.
But all is not lost.
Ironically, because Communist China currently owns more US Treasuries than any other foreign country, this perverse tactic being tacitly endorsed by the Fed will end up adversely affecting the Chinese most of all. Indeed, China will not tolerate watching the dollar’s plummeting value begin to destroy a good portion of their accumulated wealth.
The big danger, of course, is that China could eventually get fed up with America’s free-spending inflationary policies and threaten to “take the nuclear option” by selling a significant portion of their US dollars. This, of course, would obliterate the American economy — and quite possibly take the rest of the world economies with it.
Then again, if our politicians would only show real courage by forcing us to take some badly-needed medicine, we would never have to get to that point.
It’s time for the Fed to strengthen the dollar by immediately raising interest rates to reward savers and encourage more responsible allocation of resources. It’s time to quit bailing out irresponsible lending institutions, automakers, and homeowners; allow creative destruction to heal the marketplace. Force holders of rotten loans to take their lumps and file for bankruptcy, if need be, and greatly reduce the credit scores and ratings of individuals and corporations who recklessly took part in the previous spend-now pay-later orgy.
It’s time for the United States to recognize that the party is finally over and turn the printing presses off before the dollar loses all credibility.
If we can’t convince our leaders to do the right thing, I am absolutely certain that China eventually will.
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