Government Giveth — Inflation Taketh Away
I have seen several recent posts celebrating the announcement of a 5.9% Social Security Cost of Living Adjustment (COLA). It is the largest such adjustment in forty (40) years — since the 1980’s. However, this is less of a windfall for retirees than it is a recognition that inflation is rearing its ugly head.
All of those, who presently receive SS, remember the 1980’s, but perhaps not so fondly. We had “stagflation,” “malaise,” and mortgage interest rates in the mid-teens. Those without the benefit of COLA’s get to fight inflation all on their own!
The economy, investment markets, and fiat currencies (like the U.S. Dollar) are based upon “confidence” and little else. (Some would say “blind faith”.) The dollar has value only because we “think” it has value. Many companies today own little of substance. Many enterprises with household names do not even own their own manufacturing facilities (e.g. Apple). They “do” very little (which is of demonstrable benefit to society). Yet, their market capitalizations reflect that they are somehow “worth” billions (and in several instances a trillion or more).
What do they have, own, or do that is “worth” so much? Their value is based upon a belief that they will continue to sell (and that someone will continue to buy) their products or services not just today but for years (perhaps decades) into an uncertain future.
Bill Gates once said that Microsoft at any moment in time is merely three (3) years from obsolescence. That being true, can his company truly be worth $2.2 Trillion (second only to rival Apple at $2.5T)? It there true “value” there, or is it just economic speculation based upon the “Greater Fool” theory? It was P.T. Barnum, who is credited with saying, “There’s a sucker born every minute,” and more than one “investment” strategy seems to be closely linked with that belief.
So long as the average consumer believes that money will continue to flow into his bank account, he will continue to spend. So long as the investor believes that stocks will go up, he will keep his money in the market. So long as the world believes that the U.S. Dollar is stable (compared to alternatives), the dollar will remain a reserve currency. All of this translates into relatively “easy money,” but it can be an addiction. What role should prudence play?
It all works well up until the moment that it does not. Government benefits stop. Jobs get harder to come by. Investments go bad. Other peoples and nations resist or refuse the invitation to bolster the U.S. government and America’s economy. The fall can be quick, and an economy can collapse like a house of cards.
When a junkie cannot get his fix, the pain can be excruciating, and the suffering is debilitating. At some point, the drug provides not joy or contentment but merely alleviates suffering and pain … temporarily. Eventually, that which is incapable of providing a moment’s peace is too much for the body to bear. What was originally thought to be a panacea is a deadly poison.
It does not take much to shake consumer confidence (individually or collectively). We may not be able to predict with certainty the single straw, which will break the back of the proverbial camel, but should we continue to overburden the beast, his back will surely break. While sturdy and resilient, the nation’s economy is not without its weaknesses and limits.
How confident are you in your own financial and economic future? How confident are you in those at the helm of the state and those who present themselves as the faces of big business? Is your “confidence” well-founded in reason and fact, or is it a blind faith built upon empty promises, a huckster’s sales pitch, and gallons of “Snake Oil”?
Good luck to one and all, but buyer beware!
