Well, if you would like to know the essence of the problem talk to anyone whose income is linked to the fuzzy CPI we have here in the US which bears little resemblance to the actual index of basic necessities for pensioners. The current CPI is a self-serving tool used by the US Treasury to protect themselves from having to bailout more underfunded US corporate pension funds, and an attempt to help weak and exposed US insurers (think annuities) give their policyholders a raw deal.
Imagine being a pensioner, fuzzy CPI is 2%, your benefit check which is CPI-indexed, increases a measlly 2% per year, and your medical bill has gone up double digits percentage wise the last 3 years and your heating and gas bill has doubled the last year. You eat dog food.
The US is even trying to fix the problem by increasing sales of TIPS (Treasury Inflation Protected Securities) which are linked to the CPI. Imagine what happens to your bond principal when CPI is 2%, base yield is 5% and inflation is really 15%. You're behind by 8%. The US Treasury, in protecting corporate America and Social Security (and Veterans Pensions), has its hands in the pockets of every American, retired or not. Due to the underfunding of most countries' Social Security systems (think countries like Ireland and Iceland with young populations as the exception) this type of practice will undoubtably spread.
My comments on Energy Trusts were an attempt to find a solution to the problem of inflation that will eventually engulf us all and no derivative exists to protect us. The only long term derivative, the 30-yr mortgage fixed interest rate, is repackaged and resold by Freddie Mac to the willing JP Morgan, BofA and Citibank who use risky short term instruments and the knowledge that the government coordinated the bailout of LTCM to conduct their unhedged business.
The derivatives we all want (heating, food, medical costs for the 20 years from age 65-85) do not exist.
When all hell breaks loose we will migrate to the most accomodative region, and you're right, that may be Canada. |
