I do not know about you, but this fear of inflation is beginning to get out of hand. Ever since President Carter's unfortunate tenure as our President, we have had this huge fear of another bout of similar inflation. Personally and professionally speaking, I believe it is all a bunch of hooey. This could be my famous last words on the subject, but I am willing to stick my neck out.
What went wrong back then?
- Back when President Carter was in office, we had a horrible position of energy dependence. We needed a lot more oil than we had and we were subject to the whims of other countries.
- Insurance companies were allowed to purchase high yield bonds for their normally staid investment portfolios.
- Banks were just abject fools back then offering double digit CD's.
- Insurance companies were offering fixed annuities to compete with those bank double digit CD's by offering double digit fixed annuities.
- Bank regulators could not keep up with the fast moving changes.
- Insurance regulators were woefully inept.
- The biggest factor was that the Federal Reserve Bank thought that the best way to solve the runaway inflation problem was to raise interest rates.
What did we learn from all this?
- Never again be dependent on other countries for our oil supply.
- Limit the amount of high yield bonds that insurance companies can purchase.
- When you are a bank, you offer paltry CD rates and people will still buy them.
- When you are an insurance company, you offer paltry fixed annuity rates and people will still buy them.
- Bank regulation is much improved, especially since the 2008 fiasco.
- Insurance regulation is better, but there are still problems with product approvals. They are too complicated for the average consumer to understand, in my opinion.
- The Federal Reserve Bank is still a problem. Raising interest rates like they did fueled the problem.
We fixed most of those problems, but the Federal Reserve Board of Governors still believe that President Carter days are just around the corner, if we do not watch out. Never mind the fact that according to the Federal Reserve's own numbers, they have over seven trillion on their balance sheet at Federal Reserve banks across the United States. This is not a paltry sum by any means.
https://www.federalreserve.gov/releases/h41/current/h41.htm
I for one do not believe that we will have to worry about inflation on the par of President Carter's tenure in office. The main reason for this is, if the Federal Reserve raises rates like they did back then, it would doom our economy and nation. It would cause the amount of U.S. Debt to increase exponentially with a rise in interest rates that would cause an enormous hit to our balance sheet, not to mention the government debt. In effect, they would be cutting their own throat. It is much easier for the Federal Reserve to keep buying fixed income investments (bonds and mortgages,) put them on their balance sheet, then let them mature, or pick and choose profitable times to sell. These actions will guarantee rates will be low for the foreseeable future. Inflation is not a problem and I do not believe that we should ever worry about it. So, when you see the pundits on television talking about inflation getting out of hand, know that they are full of bull. It is not going to get out of hand. I'll stick my neck out and say we will never see another round of inflation like we saw when President Carter was in office.
