Bonnie,
I don't know anyplace in the U.S. where housing costs match the fed numbers. The only way someone could match the fed numbers is if they don't own a car, rent a room with shared bath, eat at McDonalds and buy a secondhand computer from a garage sale.
Sounds like a nation of college undergrads! :o)
I agree that the Feds are cooking the numbers something fierce in an effort to rein in Medicare and Social Security payments as well as "nominally" balance the Federal budget (which, incidentally, in NOT in balance in any way, shape, or form). I think we're pretty close to the limit of masking the true inflation rate in the US. It's actually becoming rather comical.
I tend to disagree with bobby beara on this, as I doubt we will experience anything like rampant deflation in this country. The planet will inflate all troubles away, as deflation is just not a viable option, no matter what the IMF's (West-serving) wishes are. In currency terms, the developing world is already experiencing strong inflation. As their currencies have crashed, most imported goods, especially those priced in dollars, have risen strongly. In relative terms, the West has recently been importing deflation from these countries. This is rather nice for the West but will very likely not continue. Trade imbalances and competitive pressures will quickly come to the fore.
Inflation has the happy outcome of putting idle excess capacity back to use, as more money means more product may be purchased. Given a choice, inflation is nearly always preferable to deflation. And in a global sense, choosing inflation is a slam-dunk.
The only fly in the ointment is that the US, along with many other countries, are in terrible positions to choose inflation, as their respective national debts will once again rapidly become untenable liabilities. This situation alone would seem to favor a 1930's global depression scenario. However, the planet's last experience with widespread deflation was so awful that it will likely be avoided at all costs this time around.
Whereas deflation will lead to many layoffs and kill the budget (lower tax revenues, higher social spending), inflation will keep people employed but the printing presses will be kept running full tilt. Either way, the budget's a goner, but there's definitely much less civil unrest (and hopefully no global war) if everyone inflates. This is exactly the conclusion Indonesia is coming to, flaunting the desires of the IMF. The other Tiger economies, Russia, China, et al will come to the same conclusion. Should the deflation route be chosen instead, the financial sector will eventually implode, a la Japan.
Either way, commodities -- especially gold and silver -- would seem prudent at this juncture as at least a part of one's portfolio. As a kicker, I believe potential Y2k effects have about a 50% probability of producing extremely inflationary pressures in short order.
Such interesting times! :o) |
