...and I used to think Grandma was crazy
My grandma on my dad's side grew up in England during the war. We've never really seen a war on US soil, so it's hard to fathom what it would be like to live in a war zone. At night, Grandma used to have to keep all the lights out so the bombers couldn't see the town. There wasn't a whole lot of money and resources were scarce. then, during the day, she and her family would scavenge the streets looking for...well...anything. All of this eventually led to grandma being a quite the pack-rat, which I never really understood till today. But, we'll get to that.
When I was growing up and visiting grandma's house, I used to get into everything. I remember cupboards full of plastic bags, junk, trinkets, coins, everything. I mean stuffed to the brim. You couldn't even open the drawers and junk would come flying out at you when you tried to opened a cabinet.
There was one secret stash I'll never forget though. In the laundry room, there was a cabinet filled with glass coffee jars. Rows and rows of glass jars with red folgers lids. It wasn't the jars granny was keeping though...each one was filled with copper pennies. Not those crappy pennies like you get today, but real copper pennies, each one minted before 1983. You see, grandma realized that when the government starting taking copper out of the pennies, they were debasing the currency and trying to give her the shaft. So she kept the copper ones and spent the new ones like the fiat trash they were.
Being young and stupid, I couldn't figure out why grandma didn't just cash out. Well, that was before today. Nor did I know that the government would one day declare it illegal to ever use that copper for anything other than those very pennies.
Today, the government lowered the interest rate to the cheers of the misinformed. You see, lowering rates makes money "cheaper" to acquire and cheaper overall. If money is cheap, businesses can borrow more easily and grow more easily. So how could this be a bad thing right?
INFLATION!
If the US dollar gets "cheaper" it makes the money in your wallet and in your bank account worth less. There is also less incentive for foreign governments to hold investments based on that currency. Less incentive for governments to hold US dollars period. Therefore they may begin to sell those dollars making them...even cheaper. The only way to stop inflation is to slow flow of new money. To make it more scarce and more valuable. Today we did just the opposite. Which brings me back to grandma.
Grandma had seen this before. She had seen paper money become worthless before her eyes and knew how to "hedge" fiat currency with hard assets that were universally valuable. Today US is relearning that lesson. So now let me give you the facts.
As I write this, the dollar is sitting at a historic low (from 1992) and still dropping. Ordinarily inflation wouldn't be a big deal, and I wouldn't care. However, this year alone, the dollar has lost 10% of it's purchasing power compared to other currencies! Have you tried to take a trip to Europe lately? Filled up your car? Today, when those spineless pawns at the fed lowered rates...the dollar dropped another 3/4%. IN ONE DAY!
Now if you're china and you're sitting on a few trillion dollars worth of greenbacks and you're only makin' 4-5% interest and some government jerk strips 1% of that value in ONE DAY, you're not going to take it for very long. You're gonna get pissed, stop buying and maybe even start selling.
POOF! SUDDENLY ALL THAT CHEAP CRAP YOU BUY FROM CHINA IS 10, 20, 30% MORE EXPENSIVE. Could that really happen?
Dollar - 15 year low - http://www.sharelynx.com/chartstemp/free/chartindCRUvoi.php?ticker=FUTDX
Oil - all time high - http://www.sharelynx.com/chartstemp/free/cots/cots4cncnrcl.php
Gold - 26 year high - http://www.kitco.com/LFgif/au95-pres.gif
So either, I'm a tyrannical nut case lying to you, or the government is lying to you by telling you how they're helping you again. Don't take my word for it, go look at the charts. After all, I'm just an idiot with no mortgage, no car payment, cash in the bank and a big pile of copper pennies....
When I was growing up and visiting grandma's house, I used to get into everything. I remember cupboards full of plastic bags, junk, trinkets, coins, everything. I mean stuffed to the brim. You couldn't even open the drawers and junk would come flying out at you when you tried to opened a cabinet.
There was one secret stash I'll never forget though. In the laundry room, there was a cabinet filled with glass coffee jars. Rows and rows of glass jars with red folgers lids. It wasn't the jars granny was keeping though...each one was filled with copper pennies. Not those crappy pennies like you get today, but real copper pennies, each one minted before 1983. You see, grandma realized that when the government starting taking copper out of the pennies, they were debasing the currency and trying to give her the shaft. So she kept the copper ones and spent the new ones like the fiat trash they were.
Being young and stupid, I couldn't figure out why grandma didn't just cash out. Well, that was before today. Nor did I know that the government would one day declare it illegal to ever use that copper for anything other than those very pennies.
Today, the government lowered the interest rate to the cheers of the misinformed. You see, lowering rates makes money "cheaper" to acquire and cheaper overall. If money is cheap, businesses can borrow more easily and grow more easily. So how could this be a bad thing right?
INFLATION!
If the US dollar gets "cheaper" it makes the money in your wallet and in your bank account worth less. There is also less incentive for foreign governments to hold investments based on that currency. Less incentive for governments to hold US dollars period. Therefore they may begin to sell those dollars making them...even cheaper. The only way to stop inflation is to slow flow of new money. To make it more scarce and more valuable. Today we did just the opposite. Which brings me back to grandma.
Grandma had seen this before. She had seen paper money become worthless before her eyes and knew how to "hedge" fiat currency with hard assets that were universally valuable. Today US is relearning that lesson. So now let me give you the facts.
As I write this, the dollar is sitting at a historic low (from 1992) and still dropping. Ordinarily inflation wouldn't be a big deal, and I wouldn't care. However, this year alone, the dollar has lost 10% of it's purchasing power compared to other currencies! Have you tried to take a trip to Europe lately? Filled up your car? Today, when those spineless pawns at the fed lowered rates...the dollar dropped another 3/4%. IN ONE DAY!
Now if you're china and you're sitting on a few trillion dollars worth of greenbacks and you're only makin' 4-5% interest and some government jerk strips 1% of that value in ONE DAY, you're not going to take it for very long. You're gonna get pissed, stop buying and maybe even start selling.
POOF! SUDDENLY ALL THAT CHEAP CRAP YOU BUY FROM CHINA IS 10, 20, 30% MORE EXPENSIVE. Could that really happen?
Dollar - 15 year low - http://www.sharelynx.com/chartstemp/free/chartindCRUvoi.php?ticker=FUTDX
Oil - all time high - http://www.sharelynx.com/chartstemp/free/cots/cots4cncnrcl.php
Gold - 26 year high - http://www.kitco.com/LFgif/au95-pres.gif
So either, I'm a tyrannical nut case lying to you, or the government is lying to you by telling you how they're helping you again. Don't take my word for it, go look at the charts. After all, I'm just an idiot with no mortgage, no car payment, cash in the bank and a big pile of copper pennies....
Labels: currency, finance, gold, governmental failure, inflation, investing
posted by Unknown at
10:20 PM
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