Blogosphereons:
As the chief financial officer of the Urban Poverty Law Center, and as one who has no formal education or background in business except for my brief lesson in capitalism garnered from our grandfather who set us up to sell hot dogs and cokes at the annual Strawberry Festival when we were children. He bought the ice, cokes, drinks, dogs, buns, condiments, cups, and we hawked colas and dogs for two days and would pull in about $200 after his expenses, and my brother and I would wonder what ever we could do with all that money in 1960 small town America. Of course we paid income taxes on our windfall.
With that training I am going to explain the Fed Reserves policy of monetizing the debt.
Money is good, OK. Through all of time men and women have sought the perfect money. Salt was used to pay Roman soldiers as it was a valuable commodity, and could be split and measured and was portable. A man worth his salt is good. Salt had some draw backs as it would dissolve in water and could spill out and looks a lot like sugar. So someone in days gone by thought of silver and gold and coins. More durable, portable and great way to store value.
There were many other things tried, cows, goats, chickens, slaves, but with anything alive, it had a shelf-life and so its value could not be reliably counted upon year after year. Back to gold and silver. Both metals are almost permanent. Silver will tarnish/ oxidize slowly and gold is inert.
Well the bankers liked gold until someone owned enough that it was hard to carry around so they got the idea that paper could represent the gold in the vault. Good as gold. Yeah!
Then our government and others thought the gold was a hindrance to printing more money and it was abandoned for fiat money in 1971 by Richard Nixon. Fiat money only has value if people think it has value. It has nothing backing it except the full faith and backing of the United States Government.
Gold was about 35 dollars an ounce in 1971. Forty years later it is pushing $1500 per ounce and I believe is under priced in dollars.
In just over two years in office, Barak Obama has spent $5 trillion deficit dollars on goods and services at today's prices. Good move! These goods and services he bought now will necessarily be much higher next year and the year after when the inflation caused from too many dollars chasing limited products kicks into gear.
For people who have been saving for retirement, the nest egg is going to shrink. My great aunt was left a widow when her husband was killed and in 1968 her estate was worth about half million dollars. That would have bought 15,000 ounces of gold in 1971.
Today her gold would be worth 22.5 million dollars. As it turned out my rich great aunt was robbed by inflation and left my mother an estate worth about $150,000 in 1981 when she died. Auntie was a product of the Depression and did not want investments. Kept all her assets in certificates of deposit at the bank. She was never poor, but with some foresight she could have preserved her wealth.
If, for every loser there is a winner, who are the winners? Maybe the debtors are the winners.
They will be able to pay off debts with inflated dollars. By example, let us say I buy a farm for $1,000 per acre. It is a modest farm of say 100 acres, of which 75 acres is tillable ground. I rent this farm out to my farmer pal who plants cotton and the first year I make $125 per acre my share on the crop when cotton was selling for $.59/pound. Now with inflation cotton is pushing $2.00/pound and if this price holds I may make $400/acre for my share on the farm. I Owe the bank $75,000 for the farm and will be paying him back with cheap dollars. As the debtor, I win. The banker made the loan at 4.8% interest betting inflation would be minimal.
Oops.
Now we all are aware that Uncle Sam, the US government is a large debtor having to raise the debt limit to over 15 trillion dollars soon to keep the business of government running. Will inflation help the government? Maybe.
If you have dollars, spend them before they are worthless. Nobody can get a loan now because bankers are hesitant to put any of that precious money out for fear of getting the inflated dollars back. It is a part of their business risk. This is the start of a money bubble.
Relax, we will all live through this. Now where is my check book?
Jackson Delano Maybolt, PhD
CFO Urban Poverty Law Center
"Money, girls don't need any money. Why they are sitting on goldmines!"
Mother Maybolt, 1928-2008
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