subject: Inflation & Recession Proofing Your Income: Primary Objective? [print this page] If you are someone who has been listening to the news about the Global Financial Crisis for the past year or so, you are probably a little bored with some of the often repetitive gloom.
If your employer downsized at the beginning of the crisis, imagine the pain and fear you would be experiencing if you had remained unemployed. The news would be analysed daily for any scrap of good news.
The good news is that many long-term unemployed are still maintaining a brave face, and often find it possible to laugh at adversity.
I have friends in this situation with whom I discuss home business opportunities. Most remain convinced that the continuing growth in China will restore normal commercial operation soon. It is an almost classic case of denial.
I have 2 questions: What is the "Balance"? And if the Chinese can, why would they help everyone out?
Well no-one knows what normal is any-more, and what with the Chinese experiencing their own inflationary pressures, their growth WILL be curtailed.
Here is what is supposed to be happening. Most countries borrow from China to fund their deficits, so that they pass funds to the lending institutions for business loans, interest payments back to the banks, and for "big boys toys."
Well the Institutions make press releases daily about how things are back to normal, BUT they sit on the cash, waiting for the inevitable emergencies. and praying that the economy will really improve.
Think about it. Would you lend money out knowing that you needed it to pay your own inflated liabilities, sometime in the near future? If you were certain that, eventually, cash was the only thing that would save you. Not property, falling in value, or unable to be sold at anywhere near the Book Value. Not shares, that are so volatile that a 15% swing in a month is not unusual anymore.
There is more pain to come, and unless the rich among us use surplus funds to assist the under privileged, the pain and suffering will be apocalyptic.
Now I don't mean assisting the chronically lazy, or funding luxuries that most can't afford, but providing education and re-training for the "downsized" and those who truly cannot help themselves.
Providing real jobs, even if those jobs involve public works, or perish the thought, public housing. Real education, in fields that are future focused, rather than entertainment support systems.
Recent comments by Alan Greenspan in the Wall Street Journal about US Federal Debt levels are also worth considering. He repeated the truism that the US Government can produce money at will, so there is no credit risk. But he also repeated that there is a definite interest rate risk.
Currently US interest rates are close to zero. However, I remember that in the late 70's over a 4 month period, the rates increased by 1% per month. In early 1980, the banking prime rate for lending was 15.6%.
The fact is that we cannot sustain our increasing borrowings, without substantial interest rate rises. In the 2 years to June 2010, the debt/GDP ratio increased by 21% to 59%. Rates will have to increase soon.
The implications are obvious. Inflation will rise sooner than most think. People need to find ways to protect their incomes from inflation, and their lives from recession
