Tuesday, August 27, 2013

Good news, inflation is your friend, well, a little bit maybe.

Ever since Obama won in 08, most my business associates in manufacturing have decided not only are they constitutional experts, impeachment experts, but economic wizards too.  Inflation, thats the main thing they predict every time I see some of them, 5 years now still the same, as sure now as then that we are days off from runaway inflation. I am not sure about them, but I took some college classes, and I read a lot now, and here's what I think.
The last month or so the markets have been jumping around a bit scared because it looks like the Fed is going to stop some of the market support, much of which is in the form of buying our own bonds.  Like a company buying it's own stock to have more say or because it doesn't want to invest in R&D or expansion, the Fed has been buying some of our own bonds, a butt load actually.  Buying our own debt, thats a whole other lesson, later OK?  The result when it happens is interest rates may rise,  oh shit their right, inflation inflation........  Not really.  They didn't do anything yet the market is upset.  Here's some of what is going on, and may go on.

China, Russia, India, Brazil, BRIC, the emerging economic giants right now are bleeding money.  That looming Fed action means a rise in interest rates in the most stable large economy in the world, and therefore most the rest the world too.  In a month, trillions have been yanked from BRIC and sent to the US.  Businesses are forced to change what they are doing, they don't like that one bit, but when you can make almost as much money in the US as you can in a corrupt crooked poor BRIC, your advisors cave in and run for the doors, put it where it's safe now that the spread between safe and risk is closing.  

All this cash is now hunting for someplace to settle, it will go into our markets and if our bond rates go up some will go to bonds.  Now the big US corps have been setting on more money than God has since 09, they don't want to invest and help Obama, but now if rates go up they will invest.  I am saying a little inflation drives the economy.  Daddy Warbucks has millions, why risk it for a few percent to loan it for a house or factory, but if rates go up, he will chase the market with it, lust for profit demands it.  One of the things I have heard for 5 years is small businesses can't get a loan, if rates go up a couple percent you bet your ass they can find money, and they will borrow at higher rates, historically rates are usually higher than now, it will return more to normal.

The prediction from economist is for small growth, I suppose that is right, but with money moving from BRIC to the US, we will have growth that's almost a guarantee, and slow is fine, that's safer than fast growth.   

What does it mean for BRIC, their growth may slow, they may have to pay higher interest, they already did that so they will push up against a level of resistance.  For Russia it may be the hardest to swallow, they have been on a wave and poking a finger at us, they may still grow, but slower and we won't be standing still, they started far behind and this doesn't help.  India may be the worst shape when money leaves, their population can literally eat up the nations wealth if they hit a bump in the road.  And not only BRIC, but the GOP will have to deal with our growth and more money stuffed into the US, something they would have liked to see happen next time they have the WhiteHouse, good news came to soon.

My pals may see their fears come true, in moderation, small inflation, and with it perhaps the economy will grow.  Actually they will like that, they will get even richer, though it benefits Obama's legacy, something that galls them deeply.

No comments:

Post a Comment

Anonymous comments might end up in the trash.