DEALING WITH THE S WORD

Christopher MarkowskiArticle, Research & The EconomyLeave a Comment

Hold on to your hot dog! That summertime BBQ you were planning is going to cost you. The average food costs for a BBQ are up 29% from last year. Holding a BBQ for a dozen guests will cost you an additional $45 over last year excluding soda and alcohol. To all of you “meat is murder” vegetarians that are celebrating this news, think again because your tofu burger will cost you 35% more than it did last year. Yet we are told that there really is not much inflation occurring.

Fed Chairman Ben Bernanke brushed off any inflation talk with this frustrating statement, “I think the increase in inflation will be transitory.”

Bernanke along with many other sycophant economic wizards have assured us that the “core” rate of inflation that doesn’t include food and energy is rising slowly. Do these wizards of economic smarts really think we are that collectively stupid? Really guys…No inflation? When was the last time you filled your tank or bought groceries? It is fantastic and I am thrilled that I can pick up a new laptop that is faster, better and cheaper than the one I bought three years ago, but I still can’t eat it, or shove it into my gas tank for fuel.

Paul Volcker was appointed Chairman of the Federal Reserve in 1979. The consumer price index at that time leapt into double digits. Volcker proceeded to double our benchmark interest rate in an effort to stem the rising inflationary tide. If we were using the same measuring stick that Volcker used in 1979, we would be talking about inflation at a rate of over 9.5%. Since 1980, the Bureau of Labor Statistics has changed the way it calculates the CPI in order to account for the substitution of products and improvements in quality.

The Wall Street Journal in an opinion piece by Stanford University professor Ronald McKinnon has raised the possibility of the “S” word. He writes, “Stagflation is an ugly word for an ugly situation: persistent high inflation combined with high unemployment and stagnant demand in a country’s economy.

We haven’t experienced it here in the United States since the bad old days of the 1970’s. Yet with prices on the rise and unemployment still high, the U.S. economy again seems to be entering stagflation.”

The problem we are seeing for responsible savers is that it is impossible to get any sort of yield from a bank. The yield investors can earn from the highest- paying certificates of deposit is lower as of May 23, 2011 than the government’s statement on the rate of inflation. This means that if you put money into a bank you are essentially losing money!

There is currently $8.9 trillion in retail-oriented money market mutual funds, cash, checking accounts, savings deposits, and CD’s If you need help figuring out safe places to put those hard earned assets so they are safe and not evaporating in some fed induced low yield banking instrument, please contact us as soon as possible.

There is some great CD options that have ties to baskets of stocks and commodities that can provide a much better yield while still protecting ones principle. There are still many great opportunities in high-quality credit worthy companies that are paying great dividends in both the common and preferred stock varieties.

Source:

Burne Katy Top CD Yields Fall Below Inflation Rate Wall Street Journal 5/23/11 Melloy John Inflation Actually Near 10% Using Older Measure CNBC 4/12/11 McKinnon Ronald The Return of Stagflation Wall Street Journal 5/24/11 Editors Bernanke’s Inflation Paradox Wall Street Journal 4/26/11 Editors Less Bang For Your Buck UK Daily Mail 5/26/11

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