Thursday, June 4, 2009

Run Away Inflation

Yesterday Chairman Bernake spoke about his fears of inflation due to the large federal deficits.  My fellow econo-focused medical student, Matt, and I have discussed at length how these deficits will likely lead to runaway inflation.  This will further help the United States in that our debt will be inflated away like post-war France. 

We had a theory that says right now everybody, China, the holders of petrodollars and the United States have a vested interest in not accepting the reality that dollars are not worth what we all want them to worth.  If either China or the holders of petrodollars jump off the dollar, their dollars will become even more worthless.  How then will the dollar recalibrate to its intrinsic worth?  Whichever of the above players first jumps off the dollar will be hurt the least.  By letting inflation climb significantly, the United States is, in effect, beginning to jump off the dollar and will suffer the least. 

The rising interest rates are climbing faster than the media is currently reporting.  When I applied for my mortgage a month or so ago I was quoted a 4.75% interest rate on one point and yesterday, when I locked in my rate, I only got a rate of 5.25%.  Obviously the rates will not continue to climb at 0.5% per month continuously, but I still think that my little data point supports the hypothesis that we will see 1970s style inflation in the near future.  Buy gold.