Inflation for awhile now has been considered necessary for an economy to prosper, which simply is not the case. Just using basic common sense you see that an ounce of silver today would buy the same amount of gasoline (roughly four gallons) today that it did 50-60 years ago; while a Federal Reserve $1 bill that in the 1940s bought four gallons, today only buys one quarter of a gallon. Inflation is merely the consequence of a fiat monetary system as well as a huge central bank.
It's impossible to talk about central banks without getting real political, but it is a vital conversation and without a basic understand of monetary policy you simply can't understand economics, in my opinion. The Federal Reserve is such a force behind the economy (good or bad) that you simply can't ignore it. A fiat monetary system is very handy for governments, but unfortunately throughout history all of them have collapsed. Ignoring monetary policy for granted as many people (including economists) do is a dangerous path.
I believe the Federal Reserve system silly, outdated, and completely out of place in a free market. How are a few people from the world's largest banks supposed to know what's best for the American economy? Truth is, there isn't one decision with interest rates that will soothe inflation and bring the economy back up to speed. The Fed has been trying this game for nearly a century and yet inflation still continues to eat away at the dollar. The Fed is in between two hard objects and will have to choose which of the evils equals the least amount of pain for the economy. Not a great situation to be in, to say the least.
Personally I don't pay a whole lot of attention to the short-term decisions that the Fed makes, because the result in the long run will be the same: inflation will continue to make its move, the dollar will lose purchasing power, and most likely new bubbles will be created and "solved" by artificially low interest rates.
Of course, there are ways for investors to find opportunities in the stock market from high inflation. Finding strong individual businesses is a great long-term move and historically has been one of the better hedges against inflation. I see precious metals and railroads as pretty safe choices, things that offer alternatives for higher energy prices or a weaker dollar. Companies like Landec who could make life much easier and cheaper for shipping businesses I see as good opportunities. Finding quality businesses with strong moats is a great way to go.
Tags:
federal reserve, gold, inflation, landec, monetary policy, silver
Posted at: 10:00 PM | Add Comment
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