As a retiree, I have been concerned about the possibility of the inflation in the near future.
Our Bank of Japan is trying to increase the mobility of money in the market. The other national or main banks in the developed countries are taking the same strategy against the on going deflation. It seems like an aimed or planned inflation they are heading to.
I suspect the excessive capital brought in the market under such policy may work as short term investments in the world. They may invest to the commodities or the developing countries' infrastructures or so. They are aimed only to get the profit. As soon as their investments carry off any profits or are endangered for drop, the investors will do something like asset stripping anywhere in the world. It will cause bubble/recession sequences in any places in the world, which will result in the recession of the world economy. How long will it take them to realize such increased mobility of capitals is of little use in such a recession?
The capitalistic system is under a challenge. It is not the problem of the mobility of capitals but of the system in the economy. There have been a lot of people suffering from this bubble/shrinkage process due to the erroneous policy. The Pope used to declare his question against the capitalism in the end of the 20th century after the Pope in the end of the 19th century did the same against the socialism. I believe they have pointed out the right thing at each era.
I don't think there will be another financial panic similar that in the beginning of the last century. But the present policy in finance may cause the more disparities among countries and among people in certain country. It may yield a subtle progress in inflation as well, which will damage the retirees like me or those poor.
Hi Shin:
ReplyDeleteLike you, I worry about inflation and its impact on the retired. Inflation is the "wild card" in any retirement plan.
Many things cause inflation, I suspect. Inflation can occur when the economy becomes "over heated" - too many dollars chasing after too few goods and services. In the USA, this happened in the early 1970's, when we tried to simultaneously pay for the Vietnam war and LBJ's "Great Society". Sometimes, governments use inflation to reduce their national debt (as was done in 1920's Germany).
I have not retired yet. But, my time is fast approaching, I think.
73,
John, n5df
Hi John,
DeleteI have stayed up preparing for the papers for accounting. It is the last time for me to do this for my own practice. I am happy to be free from such paper works soon.
I am afraid the sequence of bubble and recession has been repeated for the past decades, which has left very bad influence on the world economy. Rich people/countries are getting more rich while the others are getting poorer. The governments and national banks should consider how to get out of this bad chain of economy but have not succeeded in it. The US FRB's heads are the same as in the era of Bush. I suspect they could not lead the economy to the right way.
Let's hope our retirements will be peaceful in every respect. See you again soon, my friend. It will be the day of my parttime job tomorrow.
Shin
Shin,
ReplyDeleteYou are correct to worry about inflation having an adverse impact on your retirement. Printing money is always a bad idea, but that is exactly what the central banks of the world are doing. It is likely that they believe that they can inflate their way out of the present debt crisis, i.e. shrinking the debt by making the debt currency less valuable. To make such a policy to be even remotely successful, however, requires that spending be severely limited. Most governments have recurring costs and massive entitlement debt, coupled with no political will to curtail those obligations. The easiest current solution is to continue to print money. A byproduct of this “solution” is to temporarily keep interest rates artificially low, which supposedly keeps inflation in check. But that is only a dam holding back an increasing pressure of inflation. When it breaks, we will all suffer from an inflation which will make that of the 1970’s and 80’s look mild. By the way, inflation is already a serious problem here in the U.S. We consumers see it daily at the grocery store and at the gas pump, as well as other indices. The government currently reports low inflation, but their reporting is based on carefully selected indices that do not accurately demonstrate the average consumer costs.
Shin, as you may recall my training is in law and economics. It is both a vocation and an avocation. So, I view your comments from that perspective. My wife and I are also very worried, since we are approaching an age where our earning power will be reduced and our retirement reserves will be eroded by the coming inflation.
By the way, I recommend that you read “A Monetary History of the United States, 1867-1960” by Milton Friedman and Anna J. Schwartz, which cogently discusses the effect of governmental controlled changes in monetary supply. It is a classic and highly regarded by economists. If you like that one, I have a few more for you.
I trust that you and your family are doing well. I have been off the air recently due to work and family demands. However, I hope to hear your excellent CW in the near future.
73,
Taylor
WA4APB
Taylor,
DeleteThanks for the interesting comment. I totally agree about what's going on in the world with the inflation inducing policy. The problem is that inflation could not be controlled easily once it is started.
I believe the problem of the on-going economical recession in the world economy is due to the failure in the credit system in the monetary organizations, especillay in the major banks or investors. It is not relieved by issuing new money at all.
I haven't read any books of Friedman. Honestly speaking, I suspect he has founded the vicious cycle of bubble/rupture sequences since 1980s if I understand it right. I am not educated with economics but have heard or read about the role of his party in Chicago University. Maybe, I should try to read his works before making such critics against him.
Your comment from the economic standpoint would be appreciated any time.
I wish you good and fruitful retirement there. See you soon.
Shin
Shin,
DeleteYou are likely referring to what some critics like to call the "Chicago Boys". Milton Friedman is a free market economist and is considered an enemy of the central planners, who have infiltrated academia in the last few decades.
The old University of Chicago econ department was considered to be the mecca for free market and "neo-classic" economic thought back when Friemdman, Frank Knight, Ronald Coase and Friedrich Hayek dominated the thought there. Hayek is actually the godfather of such philosophy. My professors were predominantly from this school.
I am going to be away for a few days visiting my youngest son, who is a cadet at the Virginia Military Institute. When I return, I will add some more discussion on economic thought.
73,
Taylor