I follow the Markets pretty closely; it is an exercise which I feel helps keep my mind sharp. Analytics have always been a love of mine whether it was math or Intelligence.
Anyway, I subscribe to Stocks and Commodities, a rather conservative Print Publication, or Wall Street Daily. Below, is a recent headline from Wall Street Daily I found both interesting and I predicted almost a YEAR Ago!
A mere 2% bump in inflation rates can mean the difference between eroding 52% versus 70% of our wealth over time. Inflation might not be at the top of everyone’s worry list right now. But it’s going to be eventually, given that the Fed is dead set on printing money into eternity.
An Anonymous Friend Sent This: This is probably the most important graph in the economic universe to understand when one is involved in a fiat based fractional reserve monetary system (which we are).. if you “control” it (inflation) to a 1.75 to 2.25 % annual increase in the primary monetary base (all other variables-politicians & spending, debt to GDP, etc.,- being equal) then, as a general statement, a fractional reserve monetary system works pretty well.
This graph is so important because it illustrates what happens to the guy on the street and his family when the politicians disregard simple economic principals.. for self-serving reasons.. ie. they spend to much of our money… not only everything we send them.. but they are (and have been) borrowing/creating $ at a unsustainable rate…
Too bad the politicians don’t have a clue and always have (and probably always will) blow the spending variables out the window.. especially when economic times are good and we should be “saving” for hard times. Buying votes is expensive.
At some point this self-serving deficit spending by politicians inevitably produces a debt to GDP ratio which (in a gross simplification) slows down economic activity.. which then leads to artificially low interest rates and increased deficit spending (because $’s are “cheap”) to try and “stimulate” economic activity.. which then leads to the front door of the interest “cost of carry” trap.. the trap being when rates rise (in either a “controlled” or “un-controlled” due to market conditions) and the “cost of carry” of rolling over low cost debt to high cost debt becomes prohibitive with regard to discretionary $ available.
The other key management area within a fractional reserve system is consumer & corporate credit. In the U.S.’s case about 70% of GDP is directly related to private (private =personal & corporate demand) economic consumption. There are two primary consumer & corporate credit demand factors – demographics (the number of individuals & corporations willing to pay for products & services), and the availability of credit. If credit is available.. and there is no real demand.. then you are sitting at the front door of the “rising interest rate trap”.. pushing on a string (credit available but no demand).. which is where we are now.