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I read this page and boggled... - A Suburbs Boy Living a Country Life [My Flickr Photos]
January 9th, 2006
09:04 pm


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I read this page and boggled...

If I understand the argument they are making the unchecked increase in the overall money supply has resulted in anyone saving money at the 1 year treasury rate actually losing money every year since 1996.

Current Mood: concerned

(4 comments | Leave a comment)

[User Picture]
Date:January 10th, 2006 03:39 am (UTC)
... Sorry, say again?
[User Picture]
Date:January 10th, 2006 05:14 am (UTC)

As a fount of knowledge not worthy of dinner conversation, I spew

A gold bug! But not quite wily enough for my tastes. Some of these are on the mark enough to worry me. Not this one.

An increase in money supply is not the only factor in inflation. More money is chasing more goods, so in large part it evens out. The Fed actually keeps a close eye on inflation -- it is not "unchecked growth".

You have to remember that money isn't just currency. It is also the ability to borrow or buy on credit. I "make" money when I buy on credit and "destroy" it when I pay that money back. (Using accounting... A simple sale would transfer the money from the buyer to the seller. A sale on credit creates an account receivable to the seller, an account payable for the buyer, and both for the credit company. Instant money.)

If there was significant price inflation, you would know it. People would bitch about their cost of groceries going up. The only thing that has been seriously bid up was 1) the stock market (later deflated) and 2) the housing market in certain places. If it hits the larger economy, you would know.

Yes, the treasury yield have been low the last couple of years. I don't feel like doing the research to figure out if people "lost" purchasing power. The calculation is simple though.

(Treasury Yield * (1 - marginal fed tax rate)) - inflation

So, if it is something like 4% yield and 3% inflation (the official version because it actually *measures price inflation*), yes, it is possible to lose purchasing power buying treasuries. In this example, they reach this point if the tax bracket is > 25%. [If you are looking to make money with your money, treasuries are not the appropriate choice anyhow. However, they still beat mattresses which earn a 0% yield.]

Remember too, that inflation is a fairly public number and treasuries are sold open market. If inflation were a driving factor, the price of the treasuries would go up to reflect this. Instead, foreign countries like China have been buying our bonds (the U.S. is in a unique financial situation where it is assumed to be rock solid) which has been driving up the price of the bonds and thus lowering yields. It's a great situation for us for debt financing (a LOW LOW rate!), but not for our very small number of savers.

Yields will rise again when other countries stop buying our bonds. A couple of days ago China was signaling that it was going to diversify its holdings - interpreted as code that it was going to hold fewer treasuries. *THIS* worries me. The current level of inflation does not.
[User Picture]
Date:January 10th, 2006 05:31 am (UTC)

Re: As a fount of knowledge not worthy of dinner conversation, I spew

People would bitch about their cost of groceries going up.

I know my friends, family and i have all noticed that food prices have gone up 10-20% in the last 12 months, at least here in the DC area. There's nothing we can really do about it, so there's no point in complaining about it.
[User Picture]
Date:January 10th, 2006 05:48 am (UTC)

Re: As a fount of knowledge not worthy of dinner conversation, I spew

I can believe it, but that is a very recent phenomena and not something that started in the 90's.

I blame Bush and the Republican Congress. They spend money like a drunken sailors and then create an even bigger deficit by cutting taxes.

THAT is inflationary. More (government) money chasing the same amount of goods.

(I prefer my government to be stalemated. The less they do, the less they can mess up.)

A lot of that likely is to be blamed (rightly or not) on Katrina. The spike in gas prices eventually gets passed on to the consumer. It will probably get blamed more than necessary -- much like 9-11 got the blame for many companies missing their numbers, no matter how far-fetched the chain of causality.
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