Sunday, May 11, 2008

Our New Dollar is a Dime (reprint)

---Reprinted from May 19, 2007

Here are two pictures; the new Presidential dollar and an old silver dime. Just for a laugh, which one is worth more? Answer, the silver dime is worth about 60 cents more.

To be a millionaire in the ‘1960’s meant something. In today’s world, a millionaire is a piker with 100K in 1964 dollars. Inflation makes people think that they are getting richer. People are making more money and their house and other investments have appreciated. What could be better?

Inflation is the hidden tax. Government spends a little more each year than they take in, probably about 3%. Over a 20 year period, the decimal point moves over one space to the right (i.e. $1,000,000 becomes $100,000). This worked pretty much OK until they passed Social Security.

When you contrast the silver dime with the new dollar, a new problem becomes visible, inflation taxation vs COLA (cost of living allowance) linked retirement benefits. What is different now, is that most of these retirement items that everyone depends on, were locked into the dime that was made of silver. So now benefits have to pay at the old dollar rate, inflation adjusted. As long as the dollar could inflate without COLA's, there was no problem. Once Congress linked the cost of living into retirement benefits, it created a monster that would bite them in the ass with every COLA increase.

Let's add to this, the health care package for seniors. Imagine, at the age of 55, your health insurance cost is $300 per month. What a relief that at age 65 it will be free. I am still talking BUBBLES and this is bigger than all of the rest. This bubble is not going away. Give it another 15 years before it's visible. The real question to ask; "Is it possible to believe that we, the people (the government) are really going to pay for what, we the people, (as individuals) could not pay?

Well, this kind of gives you an idea of where we are headed. They have super sized the dime and called it a dollar. So size does matter to your Congressman, doesn't everybody deserve a bigger dollar?

The government claims the inflation rate is under 3%, that keeps the COLA's low but kind of ruins their credibility. The real rate is probably closer to 12%, that's if you buy gas, milk, meat and beer. (Who can afford to buy all four at the same time?)



So you think David Walker is right.

Jim in San Marcos said...

Hi Sack

He seems to know what he's talking about. Here's a Link

Scary stuff

We think alike, but he has a better chance of people listening to him. The only trouble is almost everyone seems to be deaf.

I'm Not POTUS said...

Hi Jim,

If I take your train of thought further, then only the most liquid of assets will satisfy the need for cashing out?
That means PM's and commodities will be sold. Big players who make up the other 3/4 of the market will want to buy up the fire sale bottom prices. They will sell liquid assets like crazy to jump in.
What does that do to PM's?
A vicious cycle of margin callers/speculators selling PM's/commodities and massive numbers of investors burned by equities will be jumping in. So the more pressure to dump stocks the more expensive PM's and commodities go up. Lots of stock sales chasing fewer commodities.
What happens to FOREX?

Jim in San Marcos said...

Hi Potus

You can figure for sure that people who need to raise cash will sell the good stuff and keep the dogs, hoping they come back. If the markets go the 1929 route, you lose 90% of your toys. Being 10% rich is not rich.

World currencies are a mess, so it does look like the Precious Metals (gold and silver) could become a medium of exchange between countries.

I see commodities falling just like everything else. As long as it has high value, people will sell it to raise cash. This brings more to market and that should start it on a downward slide.

Its like a case of playing musical chairs with bank accounts. 10 people 10 accounts. Take away 9 accounts and stop the music.

The only trouble I see is Congress "printing" 9 chairs, which could fall into line with what you suggest.

Thank you for your comments


According to Michael Panzner, and I think Karl Denninger, it'll be deflation, then hyperinflation. The difference is, Denninger thinks that if we get together, we have a chance of stopping the second phase, and meanwhile should take our lumps.

Jim in San Marcos said...

Hi Sack

I see it the same way deflation first, then later inflation and when health care gets out of control, hyperinflation. I don't see a political solution to the mess.

When you suggest we take our lumps, most people think you are refering to cubes of sugar put in tea. We are talking a baseball bat here, one lump, is one more than you want!