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Posted by anoop on October 17, 2006, 2:34 pm
There was an interesting article on Yahoo Finance today
which I'm sure many folks here must have read:
http://finance.yahoo.com/columnist/article/richricher/10932
"While some people do become richer in this system, funny
money actually punishes working people who save money.
It devalues the value of your work and your savings, even
though you may feel wealthier."
..
"For now, though, this funny money game continues. How
long will it last? I don't know. I do know that throughout history,
all paper money has eventually come back to its true value,
which is zero. That's when the game truly ends, and a whole
new cycle of pass the buck begins."
As usual it points out the problem without offering a solution.
Is there a solution to this?
Anoop
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Posted by joetaxpayer on October 17, 2006, 3:03 pm
anoop wrote:
> "For now, though, this funny money game continues. How
> long will it last? I don't know. I do know that throughout history,
> all paper money has eventually come back to its true value,
> which is zero. That's when the game truly ends, and a whole
> new cycle of pass the buck begins."
>
> As usual it points out the problem without offering a solution.
> Is there a solution to this?
Anoop, a solution to what, exactly? This is not world war two Germany,
no hyperinflation here. This isn't even the early 80's with inflation
that was out of control. I don't downplay the effect of inflation, and
I'd accept the goal of zero to one percent as a target.
Exchange rates fluctuate, true, but an equilibrium is reached and change
is somewhat slow. If we had a 300 yen exchange rate today, a Lexus SUV
would be $15000, instead of $45000. A Camry, $5000. Do we want that?
Every US auto maker would insist on tariffs to stabilize the effect of
such an exchange rate. You want the government involved in every
transaction of goods being imported, more so than today?
I rarely lob personal attacks, no matter what I think of the writer, but
in Kiyosaki's case I make an exception. Many of his posts are dangerous,
suggesting dumping dollars and loading up on gold. No regular poster
here would offer such advice.
The 'answer' is to stay invested in a way that will keep you ahead of
inflation. If you truly believe the dollar is poised to tank, choose
good foreign index/mutual funds. You'll get the advantage of both the
exchange rate as well as stock-based growth.
(you are right, he offers no solution, he's just a fear monger)
JOE
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Posted by anoop on October 17, 2006, 3:36 pm
joetaxpayer wrote:
> Anoop, a solution to what, exactly?
A solution to "funny money actually punishes working people who
save money." I can't imagine that the solution would be to stop
saving and start spending. So then what are the alternatives?
Real-estate, for example, looks like a bad idea right now.
> The 'answer' is to stay invested in a way that will keep you ahead of
> inflation. If you truly believe the dollar is poised to tank, choose
> good foreign index/mutual funds. You'll get the advantage of both the
> exchange rate as well as stock-based growth.
Based on this it looks like it would be safe for me to ignore
the article. :-)
Anoop
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Posted by jose.bailen@gmail.com on October 17, 2006, 5:37 pm
The article makes no sense whatsoever. The U.S. economy is getting the
savings of other countries like China or Japan because its economy is
still the one of most efficient -if not the most- in the world, and the
return of capital investment is higher than overseas. A higher rate of
return of capital investment means that the U.S. can offer a better
reward for Chinese or Japanese savings than what they can get at home.
Incidentally, there are other two relatively large economies which run
persistent current account deficits, U.K. and Spain. In the three cases
-U.S., U.K., Spain- the economy grows faster than in other developed
countries. That's why foreign capital gets into these three economies.
On the contrary, countries like Japan, Germany or Switzerland run
relatively large current account surpluses, in all these cases their
economies performed poorly since the 1990s, the rate of return of
capital is very low, and their citizens try to find better investment
opportunities overseas.
anoop wrote:
> joetaxpayer wrote:
>
> > Anoop, a solution to what, exactly?
>
> A solution to "funny money actually punishes working people who
> save money." I can't imagine that the solution would be to stop
> saving and start spending. So then what are the alternatives?
> Real-estate, for example, looks like a bad idea right now.
>
> > The 'answer' is to stay invested in a way that will keep you ahead of
> > inflation. If you truly believe the dollar is poised to tank, choose
> > good foreign index/mutual funds. You'll get the advantage of both the
> > exchange rate as well as stock-based growth.
>
> Based on this it looks like it would be safe for me to ignore
> the article. :-)
>
> Anoop
======================================= MODERATOR'S COMMENT:
Posters to this thread are asked to remember that this is a financial planning
newsgroup.
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Posted by on October 18, 2006, 2:39 pm
jose.bailen@gmail.com wrote:
> The article makes no sense whatsoever. The U.S. economy is getting the
> savings of other countries like China or Japan because its economy is
> still the one of most efficient -if not the most- in the world, and the
> return of capital investment is higher than overseas. A higher rate of
> return of capital investment means that the U.S. can offer a better
> reward for Chinese or Japanese savings than what they can get at home.
> Incidentally, there are other two relatively large economies which run
> persistent current account deficits, U.K. and Spain. In the three cases
> -U.S., U.K., Spain- the economy grows faster than in other developed
> countries. That's why foreign capital gets into these three economies.
> On the contrary, countries like Japan, Germany or Switzerland run
> relatively large current account surpluses, in all these cases their
> economies performed poorly since the 1990s, the rate of return of
> capital is very low, and their citizens try to find better investment
> opportunities overseas.
Partially agree, but I am not sure what you mean by rate of return of
capital, in particular with the countries you mention.
For example, German bonds have a similar return rate to Spanish bonds.
Or did you mean that if one had invested in some Spanish stocks return
would have been better than on German ones?
Wrt US vs. European bonds, sure, US yields are higher, but then again
in 2002 1 EUR was .86 USD, now it's about 1.25.
I am choosing 2002 since it was the date the Euro started to circulate
in Europe
I don't mean that we should buy that "dollar collapse/iranian oil
bourse" conspiracy, and I agree the yahoo! article in the link is
unreliable, but it's probably a good idea to hedge against a small
correction in USD in the medium term.
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