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Saturday, June 28, 2008

Entry for June 28, 2008

Are you finding it hard to earn any serious dividends from your meager savings? So am I, but I guess we should be happy to have any savings at all. The government grouses about personal savings being below zero, yet the government fails to see, or refuses to acknowledge, there is little incentive for people to save. With the economy the way it is, normally fiscally disciplined people are running up debt just to cover food, transportation, and housing expenses. Many folks once rationalized that the appreciation in their home value would cover what they did not have in personal savings, only to recently watch their home values crash and burn. Some people are raiding their retirement savings long before retirement. Many people lucky enough not to be facing bankruptcy or home foreclosure may now suffer negative total net worth. Many older retirees once counted on their retirement accounts yielding investment income of no less than 6% per year. They now have to spend the principal because their yields have dropped to 4% or less.

The government-calculated
Core Inflation does not include food or fuel. Cynics believe this is to give the government a lower inflation number to tout. Cynicism aside, the core inflation rate now is higher than the yield on many short-term certificates of deposit. The old Consumer Price Index does include the items that are killing our pocketbooks. Using the CPI as a basis, it is clear to see that there is currently no conservative way for us to protect our savings against inflation. If we cannot afford to save, the next best thing is to avoid debt. If we cannot avoid debt, the best we can do is to try to keep the interest rates that we pay manageable. If we cannot manage the interest rates that we pay, we fail.

Citing their fear of inflation,
The Fed has signaled that they have stopped making rate cuts, so now the pundits will wait to see if the economy is stimulated enough. The Fed will never admit to the fact that they never have had a true clue what to do, and that so far they have not fixed anything.

Apples, oranges, corn, horses, sheep, and cattle, if you collect any group of farmers to serve as experts on farming they all will agree what is in the barnyard and what is growing in the fields and orchards. Financial experts never can agree on anything, so I am unsure on what exactly qualifies them as “experts.” Some financial experts are now crowing that we have avoided a recession; that the true measure of two consecutive quarters of negative growth was not met. Bah! The few basis points that we stayed about negative growth amounts to a village idiot defense against the obvious; the economy is wedged deep in the toilet trap and The Fed can’t find the plunger. We are in a recession; quit trying to spin it any other way. It may grow to be the mother of all recessions.

It is best to learn about money from those with the biggest bank accounts.
Warren Buffett is the King Kong of moneymakers, with $62 Billion in credentials. When The Oracle of Omaha says we are in a recession that will be deep and long, you best not bet against the house. Anyone wanting to argue against Mr. Buffett’s views, please first show us your bank balance.

Mr. Buffett has been rather vocal lately. This is free advice, coming from the very best. I suggest
The Board of Governors of the Federal Reserve System may do well to tune in to The Oracle’s frequency.

James A. Zachary Jr.

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