The fiscal cliff that is the current hot topic in the news is a combination of automatic spending cuts and tax hikes that are scheduled to go into effect at the end of 2012 and the beginning of 2013. The spending cuts were triggered when congress failed to reach a deficit reduction agreement during last years debt ceiling debate. The tax increases are also automatic because Congress failed to make the "Bush Tax Cuts" permanent opting instead for a more politically expedient temporary tax reduction. In other words, they "kicked the can down the road" and it landed at the end of 2012. Perhaps they were hoping the Mayans were right and the world would end before they had to deal with the … [Read more...]
Impact of Inflation on Bonds Part 1
Impact of Inflation on Bonds Bonds are often considered a risk-free (or nearly risk-free) investment suitable for "widows and orphans". While they are generally safe, they have several weaknesses in the modern marketplace, inflation, rising interest rates and default risk. Before buying a bond, make sure you understand how bonds work and how inflation can have an effect on bonds. The Nature of Inflation Inflation is often described as the general rise of prices in the economy. However, the increase in prices is merely the effect, called "price inflation." Monetary inflation, which is the expansion of credit in the financial markets, is what often (but not always) drives price inflation. … [Read more...]
Why Buy Gold?
Gold has been one of the best investments over the last decade going from a low of $252 to a high of $1889. If you're looking for a way to protect against the effects of inflation, currency collapse or economic instability, here are a few things to consider about why gold should be in your portfolio. Return to the Gold Standard If you've been paying attention to what is going on in the world these days, you know that the financial markets have been in turmoil. Much of this relates to the basic underpinnings of the economic system. In the United States, the Federal Reserve is in charge of the money supply and interest rates. Nothing is backing the paper money that is printed, other than the … [Read more...]
What is Quantitative Easing?
Is Quantitative Easing Money Printing? Quantitative Easing is often referred to as "money printing" or a way for the government to increase the money supply. According to Wikipedia, quantitative easing is different from the typical method whereby governments buy treasury debt to increase the money supply. In QE1 when the market was panicked, and banks didn't want to buy government bonds, the central bank implemented "quantitative easing" by purchasing relatively worthless financial assets (like mortgage backed securities) from banks and giving them new electronically created money. So this is straight forward money printing compared to the more round about traditional method. Thus … [Read more...]
Can We Trust Government Inflation Numbers?
Independent Inflation Tracking Numbers Updated February 19, 2016 For some reason people don't seem to trust the government. I can't understand why. Surely the government only has our best interests at heart and wants to take care of us like good parents, and they are just protecting us from ourselves. And of course all politicians are honest, selfless, hard-working civil servants. Right? Well, Okay maybe they don't always have our best interests at heart. And maybe it would benefit the budget if they didn't have to pay so much for cost of living increases but surely they aren't fudging the Consumer Price Index are they? I frequently get emails, and occasionally phone calls, asking … [Read more...]
Cost of Living: How Much of Your Budget Goes to Food?
Cost of Living: Food Knowing what percentage of our cost of living is spent on food is always a good thing to know. We recently published an article by Lynn Carpenter on her Cost of Living- Real Basket of Goods in it she compares the cost of several ordinary food items over the decades. Her weekend meal basket included "one loaf of bread, one pound of coffee, one dozen eggs, three pounds of mid-price beef, one box of Corn Flakes or Cheerios, five pounds of potatoes and one Hershey bar." In this article she determined that over the years a minimum wage earner would have to work 9.25 hours in 1938 to buy this food. But by 1961 a minimum wage earner only had to work 3.75 hours to buy the same … [Read more...]
Inflation Adjusted Gold vs Stocks vs Bonds
Recently our good friends at Casey research published the following chart comparing the inflation adjusted Gold returns to stocks and bonds for the period 1971 through the present. From this chart we can see that as bonds fell during the late 1970's gold rose equivalently and stocks were basically flat. During the 1980's bonds rose and gold fell while while stocks rose slightly. During the 1990's stocks rose sharply gold fell and Bonds were volatile but basically flat to slightly up. During the 2000's gold was up sharply, stocks were volatile and bonds were pretty flat. … [Read more...]
Why (and How) China is Boosting the Price of Gold
The History of Gold Prices (and How We Got Here) To get the full picture of the current price of gold we have to look back nearly 100 years. In the 1800's and early 1900's gold played a key role in international monetary transactions. The gold standard was used to back currencies. Each country determined a fixed exchange rates for its currency, i.e. how many ounces of gold each unit of currency was worth. Trade imbalances (importing more than they exported or vice versa) could rectified via the exchange of gold reserves. A country with a deficit would have to ship gold to the country with an excess. Any country experiencing inflation would lose gold and therefore would have a decrease in … [Read more...]
Gasoline 20 Cents a Gallon?
Many of us aren't old enough to remember Gasoline at 20 cents a gallon. I can remember gas during the 1960's at 29.9 cents a gallon. The last time that gasoline averaged 20 cents a gallon was in 1942. That was during WWII ! But if you know us here at InflationData.com you probably know that we usually talk in inflation adjusted prices. So adjusting for inflation, the price of gas in 1942 would have been $2.78 if you are paying in January 2012 dollars. But that is still a long way away from the average price of Gas in 2011 of $3.48. We track the inflation adjusted price of gasoline based on the annual average price using the Consumer Price Index (CPI) generated by the U.S. Bureau of Labor … [Read more...]
Is There a Correlation Between Inflation and the Stock Market
When inflation is high and commodity prices are rising on what seems like an almost daily basis, have you ever wondered how that might affect the price of stocks? Recently I received the following question: "In the years leading up to the great depression and the great recession, the DJIA nearly quadrupled. My question is... what the cost of living did in these time periods and if there is a correlation between the stock market and the cost of living? John Kelsch" ************ John, Great question! You would think that if all commodities are going up stocks would probably go up as well, since companies produce commodities. But that isn't always the case. Often high … [Read more...]
