Beowulf wrote:Most Americans immediate reaction is an emotional one: "This is the USA! That can't happen!" Yes it can, and it is.
Single digit percentage inflation is hardly hyperinflation. Hyperinflation is what is happening in Zimbabwe where a can of food costs literally millions of Zimbabwe dollars. At a academic conference a colleague was attending a Zimbabwe guy was there and our colleague asked if he could do an exchange of $20 to Zimbabwe dollars. The guy said he'd have to give a suitcase full of money to give the equivalent. Furthermore, they chopped off three 0's from their currency so it wasn't billions anymore.
Beowulf wrote:So you have a savings account and a little money put away? Do what the Chinese are doing: BUY GOLD. As the dollar becomes more worthless, gold becomes more valuable. Any money spent investing in gold is easily going to double in the next 5 years, so its a win/win.
It's too late. If you bought Gold five years ago you'd be right, but everyone is going into it now and like any other investment, if you're late to the party you miss out. It'll still go up I'm sure, but nowhere near the growth it had in the last five years. There are too many investors now (supply/demand) and there's no way it could sustain that type of growth.
Beowulf wrote:Right now, unless a bank gives you 30% interest on a savings account, there is no use in having one. Your money isn't safe, and its sitting there being eaten. Get it out.
Your money is perfectly safe because of the FDIC. You're basically saying you'd rather have your money with 0% growth then a non-zero% of growth. The bank's interest is still more than keeping your money at 0% interest. In fact, using the inflation argument, taking your money out is basically negative interest because each day your money is worth less than the previous.
Furthermore, that type of mentality of a run on the banks is one of the reasons banks went under during the depression. The mob mentality of "my money isn't safe I should take it out" led banks to well...not have money. It's a self-fulfilling prophecy and that type of scare tactic will actually make things worse and compound the problem.
There's a reason the Federal Reserve exists. If things were to get that out of hand, it's their job to cool things off. Given they already have interest rates so low so one could easily argue they have very few options left if things got worse. Thankfully they're not and many of the recent quarterly statistics show that.
Beowulf wrote:If you google this kind of stuff, you'll find a lot of people telling you to buy rice and generators for the impending end of the world as we know it. Don't live in fear, but be ready for big shit to happen, because it is.
Now I'm not saying everything is peachy keen, but fear-mongering tactics never work out well. The economy is built on confidence and the moment consumers lose complete confident, the system falls apart. Things are pretty bad right now, but I don't think taking drastic actions that might make things even worse are the answer.
If I were go to into way too much detail, we're basically seeing a backlash to the supply-side economics and free-market ideals from the 1940's and onwards (Milton Friedman). Now I'm actually a believer in such things, but obviously we went too far with it and need some regulation. Economists now are rethinking their philosophies and starting to realize that sometimes a Keynesian system is actually valid (he was ridiculed up until recently). It's actually literally what happened after the Great Depression. Immediately after, folks adopted a regulation and demand-side economy and then maybe a decade later, went back to free-trade and a Friedman-based model.
As someone noted, this is all cyclical. It's happened before and it'll happen again until folks realize there is no ONE answer to the economy. You have to change your strategy based on what is occurring. Clearly we screwed up and kept going down a bad road.
In any case, these things have interested me for quite some time. I took quite a few classes in Economics in college and grad school even though I am not a major and it helps my father has a Ph. D. in this. Glad to see some intelligent discussion here.