One more piece of the puzzle

I haven't had time to really blog in quite a while. Hopefully, I'll be able to blog soon about what's actually going on in our life, and how we're adjusting to the new economy, etc.

But in the meantime, I can't keep quiet. I just read chapter 4 of Robert Kiosaki's Conspiracy of the Rich, and between that, and what I've been reading in the media, I'm about to explode.

Hopefully, you've watched the video on how the credit crisis happened. If not, watch it.

Last week, the Fed announced its going to buy $1.2 trillion in US Treasury Bonds. That is, it is going to loan $1.2 trillion to the US treasury to help stimulate the economy. Sounds nice right. But where does that money come from? Sure, its called the Federal Reserve, but that is a misnomer. It is neither Federal, nor a Reserve. It doesn't hold money or assets. It only prints money. Got it? The Federal Reserve announced it is going to print $1.2 trillion dollars to lend to the US treasury.

Seriously? Are they TRYING to cause inflation?

At first I was scared, and then I thought about it: maybe that's a good thing, since a depression happens when there is massive deflation, not inflation, right? That's what happened in 1929. Trouble was, that didn't make me feel any better, just more confused. How could this possibly help?

That's when I read Chapter 4 of Conspiracy of the Rich. It talks about the two types of inflation. The American type, caused by deflation, and the German type, caused by inflation. In 1929, our depression was deflation related because our money was tied to the gold standard. Inflation was controlled at that point. Savers made out huge, cause every dollar they saved bought more.

At the same time, Germany experienced hyperinflation. Their money wasn't tied to any asset, so to get themselves out of deflation, they printed more money. And more. And more. Until it was completely useless. Savers lost big time, but debtors made out because their debts could be paid back for practically nothing.

Now, our money is off the gold standard, or any standard, and our central bank is printing more money to fight deflation. Looking at Germany, I can start to understand why I don't feel like any of this is helping. Why there's no great upswing in the economy. Sure, deflation isn't a problem any more, but inflation can hurt just as bad. And I'd say from my vantage point, it is hurting. Hopefully, Ben Bernake at the Federal Reserve will be able to tell just when to stop printing money and that will help stabilize the economy. But if he goes too far, we may be in for one nasty ride.

Personally, I think he's playing a dangerous game.

Oh, and for those who are wondering, the next two chapters of Robert's book are supposed to be released very soon, and they are about how to figure out what to do: what action is best for you at this time. Personally, I can't wait. This book has been a huge piece of the puzzle for me, pulling together all the separate bits of info into a whole picture.