HIGH INFLATION WILL EAT YOUR POTENTIAL SAVINGS

[KIBU]

Hi JWM,

They will try to protect the dollar as much as possible but I am affraid, they will try to avoid more a recession/depression that can come through by a massive housing crash. With a recession, the economy will lose many things as in high inflation. The main difference is: with rate increase, we know for sure the housing market is going to be hammered even harder, increasing significant stress on the economy. With delays in rate increase, inflation will increase, there is a higher risk that investments go away, but this risk is manageable. That is, there is some rooms with inflation for the fed to play before any possible catastrophy such as suggested.

To mention the losing of currency status, specifically oil denominated in US dollar status is pretty far fetched. That would involve both strong economic and political factors which I think can only remotely happen. If you are concerned about this one, the US certainly still have lots of room before the risk of this could be any serious threat.

[KIBU]

Hi JWM,

They will try to protect the dollar as much as possible but I am affraid, they will try to avoid more a recession/depression that can come through by a massive housing crash. With a recession, the economy will lose many things as in high inflation. The main difference is: with rate increase, we know for sure the housing market is going to be hammered even harder, increasing significant stress on the economy. With delays in rate increase, inflation will increase, there is a higher risk that investments go away, but this risk is manageable. That is, there is some rooms with inflation for the fed to play before any possible catastrophy such as suggested.

To mention the losing of currency status, specifically oil denominated in US dollar status is pretty far fetched. That would involve both strong economic and political factors which I think can only remotely happen. If you are concerned about this one, the US certainly still have lots of room before the risk of this could be any serious threat.

[blahblahblah]

KIBU, you’re right that the government will attempt to keep rates low — however remember that the deficit is huge and unsustainable without borrowing from overseas. If the buyers start shifting from US treasuries, the US will go bankrupt. It’s that simple, and the government would much rather we little people go bankrupt in our overpriced McMansions than the government, which might actually have to curtail spending for once. So while they’re going to attempt to do what you say, Japan and China hold the reins in this scenario and we’ll follow wherever they lead us.

I agree that the dollar losing its reserve status is far-fetched, but I also think that double-digit interest rates are a possibility within the next few years.

[blahblahblah]

KIBU, you’re right that the government will attempt to keep rates low — however remember that the deficit is huge and unsustainable without borrowing from overseas. If the buyers start shifting from US treasuries, the US will go bankrupt. It’s that simple, and the government would much rather we little people go bankrupt in our overpriced McMansions than the government, which might actually have to curtail spending for once. So while they’re going to attempt to do what you say, Japan and China hold the reins in this scenario and we’ll follow wherever they lead us.

I agree that the dollar losing its reserve status is far-fetched, but I also think that double-digit interest rates are a possibility within the next few years.

[KIBU]

Looks like the FED has decided to eat alive our savings, CDs…..and god blesses our wallstreet investments…..

http://money.cnn.com/2007/06/28/news/economy/fed_rates/index.htm?cnn=yes

Some here made it sound like waiting doesn’t bear risk. That absolutely waiting will be the absolute answer. I think it definitely has some risk and my enemy now is inflation, high inflation, absolute inflation. I personally still wait for the housing market to potentially crash, but with watching risk in mind as well.

[KIBU]

Looks like the FED has decided to eat alive our savings, CDs…..and god blesses our wallstreet investments…..

http://money.cnn.com/2007/06/28/news/economy/fed_rates/index.htm?cnn=yes

Some here made it sound like waiting doesn’t bear risk. That absolutely waiting will be the absolute answer. I think it definitely has some risk and my enemy now is inflation, high inflation, absolute inflation. I personally still wait for the housing market to potentially crash, but with watching risk in mind as well.

[what_a_disasta]

I don’t think anyone who bought a house they couldn’t afford in 2003 is going to be happy with their decision in 2010

I don’t know about that. If you bought early enough in ’03 you are likely going to end up doing ok unless there is some dramatic turn of events.

It seemed to me like it was from mid ’03 until mid ’04 when the hysteria was in full effect. The paper gains owners got in that period constitute quite a cushion.

[what_a_disasta]

I don’t think anyone who bought a house they couldn’t afford in 2003 is going to be happy with their decision in 2010

I don’t know about that. If you bought early enough in ’03 you are likely going to end up doing ok unless there is some dramatic turn of events.

It seemed to me like it was from mid ’03 until mid ’04 when the hysteria was in full effect. The paper gains owners got in that period constitute quite a cushion.

[cr]

what_a_disasta,

The key part of my comment is the “they couldn’t afford” part, more than “2003”. Prices in 2003 were much more reasonable in most areas, but if they couldn’t afford it then, and didn’t sell by 2006 when prices finally stopped rising, they’ll likely be underwater and/or forced to foreclose or sell at a loss unless their income went way up.

The issue of high inflation, right now at about 2% according to MSN, can be managed IMO with a savings account, CD, or bond that gains at least 5%, to cover inflation and taxes on the interest income.

With the alternatives being the stock market or real estate, I’d take a 2% net gain on cash, over a devaluing house, or a market that goes down on the fed leaving the rate alone.

That’s just me though.

[cr]

what_a_disasta,

The key part of my comment is the “they couldn’t afford” part, more than “2003”. Prices in 2003 were much more reasonable in most areas, but if they couldn’t afford it then, and didn’t sell by 2006 when prices finally stopped rising, they’ll likely be underwater and/or forced to foreclose or sell at a loss unless their income went way up.

The issue of high inflation, right now at about 2% according to MSN, can be managed IMO with a savings account, CD, or bond that gains at least 5%, to cover inflation and taxes on the interest income.

With the alternatives being the stock market or real estate, I’d take a 2% net gain on cash, over a devaluing house, or a market that goes down on the fed leaving the rate alone.

That’s just me though.

[kewp]

If you want to hedge against inflation, go liquid (sell your US denominated stocks, bonds and real estate) and divest into foreign currency baskets and commodity indexes.

Wait till equilibrium (dollar stops falling) then buy back into the US market. You will plenty of US pesos to buy fire sale McMansion’s and yellow hummers.

As for the status quo, if we stop cutting taxes for the super-rich while starting wars, we will have plenty of resources to run a budget surplus. Just like the Clinton years!

[kewp]

If you want to hedge against inflation, go liquid (sell your US denominated stocks, bonds and real estate) and divest into foreign currency baskets and commodity indexes.

Wait till equilibrium (dollar stops falling) then buy back into the US market. You will plenty of US pesos to buy fire sale McMansion’s and yellow hummers.

As for the status quo, if we stop cutting taxes for the super-rich while starting wars, we will have plenty of resources to run a budget surplus. Just like the Clinton years!

[bob007]

I agree with KIBU. But usually high inflation means high interest rates. I think interest rates will lag inflation. I cannot wait to see what 9% mortgage rate does to California real estate markets

[bob007]

I agree with KIBU. But usually high inflation means high interest rates. I think interest rates will lag inflation. I cannot wait to see what 9% mortgage rate does to California real estate markets

[fuggy]

I do not think the US is protecting the dollar. They have organized a quiet multi-year rout. We earn Euros and exchange it for 1.32 dollars after an exchange fee.
And everything costs more in Europe, too. I think the US allowed the dollar to deflate around 50% and are just keeping it right there. US officials seem to love the 1.34 exchange rate.
Is the plan to deflate away half that pension debt companies owe people and foreign debt? And since they have been able to keep interest rates low while the dollar has sunk to and stayed at 1.34, well the Fed guys are terribly clever.

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