I already know how they’re costing me money. If you calculate the value of my Star Wars merchandise, I should have paid off their national debt two years ago. But Motley Fool has a different take on how they’re hurting your bank account. And a solution! Check it out:
America and Inflation
Ben Bernanke recently defended America’s use of low interest rates to boost its economy. The US Federal Reserve chief was responding to concerns by analysts that low rates are cutting the value of currencies of advanced nations.
However, Bernanke defended the actions of the US Federal Reserve and Europe’s central banks by saying that they are helping to boost the global economy. He fell short of uttering the immortal words of former Treasury Secretary John Connelly who said in 1971 about the US dollar: “Our currency, but your problem.”
That would have been cruel, but the sentiment is almost the same. It would appear that the US (and many developed economies) is artificially creating inflation to whittle down their debt burden in real terms. It can’t pay down the debts and it certainly can’t afford to default on them. So, the only realistic option is to inflate away the debt.
Unfortunately America’s inflation problem is also our problem. In fact, inflation is already flowing onto the shores of Singapore.
The recent jump in the Consumer Prices Index to 4.9% is a sign that inflation is seeping into our economy and pushing up the cost of living. Of course, there could be months when inflation may recede. However, once the inflation genie is out of the bottle it is very difficult to put it back in.
As investors we have two choices, namely to ignore the problem and hope that it may go away or to address the problem head on.
The “ostrich” option would be dangerous. That’s because burying our heads in the sand is not going to stop inflation from eating away at our long-term savings. If inflation persists at 4.9% for the next ten years, then $1,000 left idle would only have the buying power of around $600 in today’s money in a decade’s time.
The logical solution is to invest in an inflation-beating asset such as shares. As an avid income investor, my heart lies with shares that pay me for owning them.
This article was first published on the website: http://www.sias.org.sg/siw2013/articles_15thApril_01.html
You can also view David’s interview with SIAS at http://www.sias.org.sg/siw2013/videos_15thApril.html#02
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.
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