I wrote back in January that Obama budget deficit would lead to inflation. Now finally financial writers are calling it the Obama dollar.
In personal finances, debt is not a good thing unless properly managed. Advisers distinguish between good and bad debt. Bad debt is spent on consumer goods and services (Christmas gifts, food, vacations, etc.). Good debt is used to buy appreciating assets like a house or investments which will produce positive cash flow (e.g., Crescent Point Energy Corporation, which pays 23 cents per share Canadian per month).
I lamented that Obama called his profligate budget an “investment”. But there is no question that government debt is bad debt. It is used neither to purchase appreciating assets nor cash-producing investments; rather government debt is spent on programs and make-work projects that will never have a profitable rate of return. 1.4 trillion dollars was borrowed in the 2009 budget year and it has led to inflation of the US currency as I predicted in January. Let’s consider the difference in Canadian dollar: On Jan 23, the Canadian dollar traded at 1.234 to the US Dollar; now today it is at 1.03 per US. This is a drop of nearly 17%. But it is not as though Canadian currency is not also being inflated by low interest rates. In Canada, most investments, including stocks and real estate, have nearly completely recovered from the downturn. Housing is now completely recovered in much of Canada, and this has financial writers worried about a bubble in housing prices.
I am still shorting the US dollar (it means that I gave borrowed US to purchase Canadian-based Barrick Gold (ABX: NY), Enerplus (ERF: NY), and Daylight Resources Trust (DAY.UN: Toronto).
Writers and analysts often refer to the Federal Reserve Bank “printing” money. Actually they don’t have to literally print money, because the central bank has the ability to create money without printing it. This is done especially well when the Federal Reserve buys US treasury notes. The dollar is called a “fiat” currency, because money can be made from nothing and out of paper and ink. Eventually, however, printed money flow will have to increase in order to keep up with prices. But until then, inflation remains an invisible monster which devours people’s savings and cuts into how much they can earn.
The Carter years (1979-1981) were formative for me, as I graduated from high school in 1981. I remember them like yesterday, and I remember its high inflation and how Reagan implemented so-called Reagonomics, reining in profligate Federal Spending. Reagan halted an out of control Congress and put America back on track. Being a beneficiary after my mother’s death in 1977, I remember my own Social Security check being cut. Unfortunately, Obama was apparently too busy taking drugs during those years (marijuana and cocaine when he could afford it) and so has returned us to the pre-Reagan economic policies and ideas; but he has, in collusion with the Democrat Congress, implemented economic policies which are even worse than what we had during the Carter malaise.
I met a man from Singapore whose father lived in want much of his childhood and therefore as an old man hoarded enough rice for many years. In like manner, I am afraid of inflation, because that’s what I saw as a child, and I have been preparing for this moment since I first heard about the Obama budget. I fear inflation as much as any other investment risk, perhaps more. The so-called safe haven of the dollar is a complete myth, all the more so when it is the Obama dollar.