Benson's Economic
& Market Trends
With Inflation, There's
No Free Lunch
Richard Benson
Jun 13, 2008
If Americans feel they are
being pick-pocketed by inflation, they should take a look overseas.
With the United States pushing its trade deficit and dollars
on the rest of the world, many world central banks thought they
could grab a "free lunch" by buying US Treasuries to
hold the exchange rate of their currencies down, and paying for
them by printing up free local currency. This so-called free
lunch has turned out to be mighty expensive.
Currently, over 3 billion people
are experiencing what it feels like to be robbed by inflation.
While free trade and globalization initially pushed up the standard
of living in many developing countries, increases in the demand
for basics like food and fuel, fueled by an over-supply of money
and credit, have goosed inflation in a big way. So much so, the
middle class and poor in many countries are literally being wiped
out. Starving, desperate, and angry people are appearing in the
headlines daily as they try to bring this dire situation to the
attention of their leaders through violent demonstrations and
riots. (What you don't see in the press every day, but should,
is in the chart below):
Notes:
(1) The statistics indicated are as recent as possible and were
taken from articles appearing in The Financial Times, Economist,
and other publications in the financial press.
(2) On June 9th, The Financial
Times published an article that suggested official inflation
statistics are not to be believed and inflation expectations
show rates of 25% to 30%.
In Argentina and Vietnam, as
one example, panic-stricken residents are swapping their currencies
for dollars and Euros. But given the double-digit growth in M3
for the dollar and euro, these inflating currencies may prove
to be a dangerous place to hide from inflation. Even for the
currencies that are touted as being stable, interest rates are
still below the rates of inflation wherever you look.
Unless interest rates are increased
materially above the rate of inflation, prices will continue
to rise. But with the high level of bad debt in the world banking
system, the financial system would not survive the strain of
a significant interest rate increase. For a period of time, stagflation
will become a new way of life for many of us.
Clearly, if you reside in one
of the countries mentioned in the chart, and want to avoid being
wiped out entirely, one of the safest hedges against inflation
is to buy gold and silver.
Because I'm patriotic
and know that preserving my capital will help America preserve
its capital, I'll continue to buy them too.
Jun 12, 2008
Richard Benson
Archives
President
Specialty
Finance Group, LLC
Member FINRA/SIPC
2505 S. Ocean Boulevard
- Suite 212
Palm Beach, Florida 33480
1 800-860-2907
email: rbenson@sfgroup.org
Richard Benson, SFGroup, is a widely-published
author on securitization and specialty finance, and a sought after
speaker at financing conferences on raising equity for mid-market
companies.
Prior to founding
the Specialty Finance Group in 1989, Mr. Benson acted as a trading
desk economist for Chase Manhattan Bank in the early 1980's and
started in the securitization business in 1983 at Bear Stearns,
and helped build the early securitization businesses at Citibank
and E.F. Hutton.
Mr. Benson graduated
from the University of Wisconsin in 1970 in the Honors Program
in Math, and did his doctoral work in Economics at Harvard University.
Mr. Benson is a member of the Harvard Club of New York and Palm
Beach.
The Specialty
Finance Group, LLC is a Florida Limited Liability Company and
is registered with FINRA/SIPC as a Broker/Dealer.
321gold Ltd
|
