Published Monday, July 10, 2006Published Monday, July 10, 2006
by Stephen Butler
As my friend and fellow pontificator Steve Anderson once said, "Pontificators don't have to support what they say with facts. They just pontificate."
Some readers might suggest that I am hoisting myself on my own petard by sharing that anecdote, but there are a number of us out there who should probably be in support groups and a 12-step program.
The latest initiate would have to be Steve Forbes in his July 3 Forbes magazine editorial, in which he prattles on about how the inflation we are clearly experiencing is the fault of the Federal Reserve because it has allowed too much money to be created.
Actually, all central banks of the world's economic powers increased the money supply by reducing rates to almost zero just a few years ago because they were concerned about the dangers of deflation. Many would argue that this infusion of money is what led to the world's economic boom of the past several years.
Forbes emphatically states that, "Inflation itself is a purely monetary phenomenon." Well, when I read about unions demanding wage increases and people paying more for any petroleum-based products, I have trouble believing that a Federal Reserve board of governors turning knobs on the money supply really has much impact.
Furthermore, Richard Young's Intelligence Report, which offers pontification backed up with charts and graphs, illustrates how the Fed actually follows the interest rates after they have been established in the short-term bond market.
The people who run around blaming the Fed for rising interest rates need to have their heads examined -- and join a support group while they're at it.
Recent reports from the credit counseling industry say that their offices are suddenly being flooded with people with way too much debt at rising interest rates they can't afford. Now, these people can't even go bankrupt anymore.
When enough people in this impossible predicament reach what some would call the "tipping point," we might finally begin a serious national dialogue about leadership and whether we have adequate decision-makers from either party in power.
George Soros in his new book, "The Age of Fallibility," talks about the "feel good" imperative that dominates American society today. Why should this be surprising? It wasn't that long ago that an American rallying cry for the Woodstock generation was, "If it feels good, do it!"
Politicians have tapped into this wavelength and have been reluctant to inconvenience anyone. Witness our being the first country in history to have embarked on a war without raising taxes. And, for a crowning "feel good" moment, the U.S. Congress actually debated the suggestion that everyone receive $100 as a subsidy in response to rising gas prices.
The real war coming up will be between those who want to continue their "feel good" mentality versus those who care about what kind of country will be around for themselves and their kids in 10 to 20 years.
Meanwhile, inflation and rising interest rates may be a good thing for retirees. Rising interest rates offer increased income from risk-free investments such as CDs, money market funds and short-term bond funds.
Generally speaking, older folks aren't impacted as much by inflation because they're not still buying things. They already own most of what they need.
Social Security is even indexed to inflation, so the baby boomers have the bases covered. With expenses flat and income rising, inflation is not necessarily the bugaboo that pontificators depict -- at least not for older folks.
For the rest of us who suffer no delusions regarding the Fed's ability to actually control vast global economic forces subject more to political decisions, uncontrolled inflation is bad. For starters, interest rates are the single most influential factor in stock values, and rising interest rates reduce real estate values. They also contribute to an economic malaise that demonstrates how much economic weakness is credited to the fragile emotions of society.
So, "bring it on," as they say. It's not like we have a choice. Maybe the pain of economic turmoil will shock the system and bring us to a higher level of collective responsibility.
In the meantime, we might want to reconsider our plan to borrow money for that major purchase that would have felt great to have. I know President Bush advised us to "just go shopping" not that long ago, but what works for him might not be wise for the rest of us.