Which investor loses due to inflation? Who gains?

joyfulguyJanuary 17, 2006

See my post over in "Household Finances" forum.

The person who invests in dollar-denominated assets loses - the one who borrows those assets (usually) wins.

ole joyful

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jeanniez5

ole joyful, my son is a financial manager in California and he is firmly convinced that we are on the road to depression and will have a period of inflation prior to the big fall. I wonder how many others are of this opinion. Our country is in a world of hurt financially and he is recommending that I invest in foreign currency. Do you think Canada is foreign enough? I take the Bottom Line periodical and an article a few issues ago said if we're on a vacation close to the Canadian border to drop into a bank and deposit some funds to protect ourselves. What do you think of that?
Jean

    Bookmark   February 18, 2006 at 2:32PM
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joyfulguy

Jeanniez5,

About half of our trade is with you ... and we are about 1/10th of the size of the U.S.

So - if you sneeze - we get pneumonia.

That said - you might like to get some Canadian oil and gas stuff - we have more petroleum in our oil sands than they have in Saudi - but it's all mixed up with sand and it was too expensive to separate until the prices per barrel went up (above something like $20./bbl., I think).

They've been developing innovative technology to deal with it, as well.

But - had you bought Canadian dollars a couple of years ago, when it took U.S. 65 cents to buy a Canadian Dollar, then sold it now when a Canadian dollar will buy U.S. 85 cents - you'd be laughing.

But - you might consider it unwise to repatriate your money.

The U.S. government has huge debt. And is spending huge sums buying a lot of military hardware - how they plan to blow Osama up with bombers is more than I can understand, but ...

And they're running huge deficits - and offering large tax cuts (which benefit mostly the rich).

They told about worries about an "axis of evil" - Iraq, Iran - and North Korea, a bankrupt country, for God's sake. Needed anti-missile missiles, they said (that, some authorities say, don't work). And they want Canada to buy some, as well.

The one they're really worried about, but can't say so ...

... is China.

But - China holds huge amounts of U.S. bonds.

If they say, "Pay up" - the effect on the U.S. economy could be devastating - as bad as Pearl Harbour?

U.S. consumers are running up huge debts, as well.

Buying stuff made in China and sold here cheap by Wal-Mart - who are busy selling the U.S. dream down the drain.

When they get stuff manufactured/built/shipped largely by robots, so that only a few jobs are needed ...

... or they shift the high quality and stable jobs overseas, then ship the stuff over here to sell it ...

... who among us is going to have any money to buy it?

Our governments ran up those huge debts when we were having good times.

I don't know about yours, but our federal pension plan is in trouble, and about to get more so, as the aging Boomer generation starts to to retire. And sign up for pension benefits.

And we've let our roads, sewers, water and electrical generating systems, etc. deteriorate.

And now are talking about selling them off to the private sector, for we can't afford to fix them.

So they'll fix them - and will need profits on their investments.

So - what'll happen to our water, electric, sewer rates?

You got it!

And - we in Canada still have a more or less publicly operated health system - but many of us fear that it's about to go down the tubes - U.S. big outfits sure would like to get in here to make big profits on our medical systems.

We have stolen, big time, from our grandkids - when we enoyed the best times ever.

And not about to continue, for us in the Western world.

Trouble is - if you want to buy stocks using a Canadian broker, I don't think you can - I think it's illegal for Canadian brokers to have clients with a U.S. address.

I think that having money in Europe, South America, India (an English-speaking more or less democracy) or China makes a lot of sense. Japan seems to be re-awakening, as well.

Have you read a book "Dark Age Ahead" by Jane Jacobs, renowned city planner, whose books have become texts in that field? It's in our local library - might be in yours (or they might order one for you).

I don't like its thesis - but I agree with it.

Shout if you'd like further info - though why you would, after this pessimistic tirade is more than I can fathom.

Have a lovely week, what's left of it.

ole joyful

    Bookmark   February 20, 2006 at 5:23PM
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jeanniez5

ole joyful, you have definitely been conversing with my son. EVERYTHING you say, he told me at Christmas. He also is of the opinion China will lower the boom on us, it is just a matter of when not if. Their economy is going strong and if they call our loans we can't begin to pay up and they will have to take great losses which will slow their growth. If only we knew when was the time to pull in our horns.
We retired this year and our money is mainly invested in land and cash rent is pretty good now. The last depression those with cash came out smelling like a rose. We are wondering how much ready cash it will take to sustain us during a long bear market. I know these aren't the years to be keeping more than $100,000 in any one bank per person. A bank near us has a MMA paying 4.45% now. We are trying to diversify but our negative attitude regarding the condition of the fnances of our nation makes it hard.
Jean

    Bookmark   February 21, 2006 at 8:49AM
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joyfulguy

Hi Jean,

Some years ago when I lived in Korea they suffered substantial rates on inflation.

As they did in Germany after World War I.

They printed money - and the value of each unit deteriorated.

As I mentioned - in Germany, and recently, Argentina, oe had to run a wheelbarrow full of currency to the coal dealer's to buy fuel.

In Korea, having money in currency-based units was deadly.

One needed to own something of value.

If people had surplus money, planning to buy a bicycle, laterr, they'd go to the local cloth merchant, who had a hole-in-the-wall store and was short of stock.

The money they had would allow him to buy, say half a bolt of a certain kind of cloth - so they gave him the money, and he bought it.

Next year - twice as much money - half a bolt of cloth.

Eventually, after prices had gone up drastically, when they thought they had enough to buy a bike, they visited the cloth merchant, who'd been keeping track of the value of the stuff they'd "bought" from year to yer, told them how much he'd give them as the value of that amount of cloth at today's prices - probably 20 - 30 times the original amount they'd given him.

Which was about the current price of the bicycle - so the cloth merchant gave him the value of the goods - and they bought the bvicycle.

Best to own stuff, that will appreciate in value, rather than cash.

Bye - library's closing.

ole joyful

    Bookmark   February 21, 2006 at 4:59PM
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