Jun 18th, 2008 by Jennifer Lynn
In The Current Turbulent Economy and Financial Sectors, What Gives?
I’ve become somewhat of a CNBC junkie lately, which has resulted in some pretty bizarre sleeping patterns. It’s not unusual to catch me propped up on my pillows at 4am, munching on some Cheerios and sneaking in an hour or two of ”Worldwide Exchange”. Month after month I’ve held my breath and cringed as the Federal Reserve continues to slash key interest rates. The suspense! The horror! And most gut wrenching of all - the sheer anticipation as the world frantically wonders what card Bennie Bernanke will extract from his magical hat of endless financial illusions next.
Inflation is becoming a growing whisper of concern even among the stoutest of mainstream media. Some professionals insist official data has been skewed and inflation is rapidly approaching the 5% mark or greater. Amidst economists bickering back and forth about the particularities of what constitutes a ‘global slowdown’, a ‘recession’, a ‘stagflation’ or a zesty myriad of other terms, one thought continues to become astoundingly clear.
Prices are going up. And at current interest rates, my savings are getting royally screwed.
The Demise of Debt?
As a novice in the financial arena witnessing it all as I lay wrapped snug in my blankie (yes, I still have a blankie!), it’s been a hell of a ride so far. Certain financial markets are roaring to life while others cool themselves into near oblivion. In these daunting financial waters, investors scramble to find their potential life rafts. Will history continue repeating itself? Is our mounting national debt and insatiable consumerist desires about to nip us in the rear as we struggle to deleverage ourselves?
Well, I do know one thing. If everyone stepped out of debt today, it would certainly cause a catastrophic economic collapse. Our entire currency is based off debt, meaning that every dollar you hold in your hand entails someone else needing to be in even greater debt for that dollar amount you’ve just stuffed into your wallet to even exist. If everyone simultaneously paid off their loans and refused to take out new ones, the entire financial system as we know it would come to a grinding halt. Quite a pickle to be in, don’t you think?
Statistically it would be impossible for everyone to pay off their debts all at once anyway. When loans are made, the principle is zipped away to the wide expanse of the money pool (or total money supply). But we all know we’re not merely paying the principle amount back when we repay a loan - who can forget the exorbitant interest rates we shell out for the privilege of buying the latest shiny trinket with money we don’t have yet. So where does the interest money come from anyway? Well, it all comes from the same money pool - the one containing everyone’s initial principle. The one containing only the principle amount.
It’s a continuous game of musical chairs, folks, and this time the subprime mortgage borrowers didn’t grab a chair quick enough before the music stopped playing.
Those poor sods.
Debt Still Isn’t Kosher
With interest rates so low right now, it unfortunately doesn’t do me a lick of good stashing too much into a savings account. The wisest route will be to focus on aggressively tackling my debts. Unfortunately even if I didn’t have ANY debt, putting money into a savings account would be a losing proposition. So all remains quiet here and for the moment you can find me tucked into the wee hours watching the financial news and enjoying an early morning snack.
Just don’t expect me to peer underneath my bed. There may just be a big scary inflation monster peeking back at me.
Baby Steps Are Key ~†~ Money used to represent value. Now money represents debt – and debt is enslavement.
Sayings of the Wise
By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. -John Maynard Keynes
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. -Alan Greenspan