Saturday, September 20, 2008

Monetary inflation - the fall of the dollar

To be honest, I haven't given our nation's economy to much thought in recent years. Basically, I figure that I have about 35 years till retirement, so we have been contributing heavily in our 403b and seeking to get as debt free as possible, as the Lord wills. We try to live within our means and spend less than we earn. Basic common financial sense.

Well with the recent week on Wall St. and our government's financial bailouts, I have been interested on how we got here. Not to many people are talking out how we got here, but instead how can we fix the problem. The thing is we aren't looking at what may of caused the problem in the first place. So if we don't fix the cause, we are doomed to repeat it in the future. I am sure it is very complicated and we are dealing with sinful fearful people, who act a lot on fears, but we have to face the truth someday.

It seems like only 2 people have been really telling it how it is...Glenn Beck and Ron Paul. I know Ron Paul attempted to run for the presidency, but I didn't really get to know what he believed or stood for. Well he seems very knowledgeable about our economy and has predicted the past events years before. Here are one of his thought on our economy that have struck me.

1. In regards to rising energy, part of the answer lies in understanding bubbles and monetary inflation, but especially the Federal Reserve System. The Federal Reserve is charged with controlling inflation through interest rate manipulation, however, many fail to realize that creating money, and therefore inflation, is really its only tool. When the Federal Reserve inflates the dollar as drastically as it has in the past few decades, the first users of the newly created money go in search of investments for their dollars. They must invest this money quickly and aggressively before it loses value. This causes certain sectors to expand beyond what would naturally occur in the free market. Eventually the sector overheats and the bubble bursts. Overinvestment in dotcoms eventually led to a collapse of the NASDAQ. Next we had the housing bubble, and now we are seeing the price of oil being bid up in the creation of another new bubble. Investors are now looking to commodities like oil, for stability and growth as they pull capital out of real estate. This increased demand for investment vehicles related to oil contributes to driving up the price of the actual product.

- Ron Paul,tx14_paul,blog,999,All,Item%20not%20found,ID=080619_2061,TEMPLATE=postingdetail.shtml

I am also very concerned out the fall of the dollar (I really took notice when we went on our Germany vacation, and it cost about 1.5 times more due to the very weak dollar). Here is one cause of the falling dollar...

1. The greatest threat facing America today is the disasterous fiscal policies of our own gov't, marked by shameless deficit spending and Federal Reserve currency devaluation. It is this one-two punch -- Congress spending more than it can tax or borrow, and the Fed printing money to make up the difference -- that threatens to impoverish us by further destroying the value of our money.
The Fed's inflationary policies hurt the older people the most, because they generally rely on fixed incomes from pensions and Social Security. So while Fed policies encourage younger people to overborrow because of interest rates are so low, they also punish thrifty older people who saved for retirement.
-Ron Paul (The Federal Reserve Monopoly over Money; April 9, 2007)

----This doesn't seem fair or right! I am not sure how this really will affect me in the future, but history shows that when the depreciation of money becomes rampant, nearly everyone suffers and the economic and political structure becomes unstable.