Expect Higher Inflation

I found it interesting two days ago (9-14-12) when Bernanke stated right out that the current 2% inflation was insufficient and that the actions of QE3 and the promised "extended period of low interest rates" were being rolled out specifically to fix this.  This is consistent with my thinking that an obvious and sensible way to reduce our monumental governmental debts is to devalue the dollar (link to earlier essay on this).  Actually, I think it is likely the best solution.  Of course runaway inflation is certainly a risk.  But at this point is there any risk free solution to debt reduction that will at the same time will keep the economy afloat, prevent the collapse of our financial systems and keep us competitive in the world markets?  None that I can see.

The QE3 should not be a surprise.  Many others across the world are also devaluing their currencies. The Euro continues to be driven toward parity with the dollar (14% reduction in its value against the dollar in the past year). Several countries' currencies are already at parity with the $ and these countries appear to adjust their currencies as needed to stay there (Canadian dollar = $1.01, Swiss Franc = $1.04, Australian dollar = $1.04). China's currency relative to the dollar is less than 1% different from what it was a year ago.  Besides the Euro-zone several other significant economies reduced their currencies' values relative to the dollar in the past 12 months:  Japan- by 3%,;Indonesia - by 10%; South Korea by 5%.   Compared with the overall world economy, we actually lag in devaluing our currency.

Clearly the QE3 and low interest rate stuff favors at least short term improvement to the economy - and this will improve President Obama's image.  This very much upsets the right.  Many right wingers contend that Obama's political gain is the motivation behind these actions.  I don't buy this for a minute.

Most of the right see the writing on the wall - their control and political might is waning.  They are in denial that this is largely their own fault - because of: much government fiscal irresponsibility occurring on their watch; because of their phobias of non-whites and different cultures and lifestyles; because of their favoritism to the wealthy; and because of their unwillingness to deal constructively with change. Given this denial, many right wingers are struggling for explanations.  And many are grasping at conspiracy theories concerning the left to explain what they cannot comprehend.  It's a tough time to be a flag waving Republican Party member - many are in desperation.  (To be fair, many the of the left are also in much denial over their own shortfalls, failures and misdoings, and they too are grasping after conspiracy theories concerning their opposition.)

Some individuals will benefit from increased inflation - notably those with significant debts.  But others, including those who have savings and who have non-inflation indexed pensions (baby boomers like me!) will lose wealth and will be hurt as inflation rises.  Overall, though, the inflation will  help the economy and will benefit the younger generations (given that it does not run away from us).  And it will diminish government debts mortgaging our children's future - not!.  Raising inflation rates is the right thing to do.  And it will happen - even if the right wingers regain control (except under the unlikely scenario where the right would regain control and then allow the economy and our financial systems to collapse). 

So, accept that higher inflation will happen and prepare for it.  And if you really feel hyperinflation is likely, then spend some time/money preparing for that too.  My preparation (for tough times, with low expectation of hyperinflation):

• I own my home and maintain it myself
• I'm improving my abilities and skills in self reliance, and in providing services of value to others
• I'm improving my health and minimizing my dependence on expensive health care providers
• I'm working on stock market strategies to have a means of preserving the value of my savings
• I'm expanding my friendships and contacts with people who have practical skills and resources useful for survival in tough times
• I'm enjoying and sharing my health and my wealth (my time) while I still have them 

After all, it is delusion to think that health and wealth are ever anything more than temporary.