Yellen, inflation and the Middle Class

My sister corrected me the other day when I said there were two classes in America the haves and the have nots. She said today there are actually three – the haves, the have nots and the usta’ haves. Inflation and low interest rates have been constantly chipping away at the middle class and converting a lot of middle class people into usta’ haves.

Most of the audience here at I believe are in the middle class, upper middle class or saving to be in the middle class. We look at gold as a source of wealth that will not diminish in time as opposed to the value of the dollar that has fallen to just 2% of the buying power it had in the 1900’s.

If you have been shopping for food, paying for gas, heating your house, paying for electricity to light your home anytime in the past four years you know that prices have been rising almost continuously. You also know that the government’s official reported rate of has nothing to do with reality or your life and the things you need to buy every day to live. Inflation is vitally important to you because you know that inflation is constantly eating away at what your money can purchase and constantly reducing the amount of money that you can use to protect yourself and your future by purchasing precious metals. If you have saved for your retirement you see the artificially low interest rates have severely reduced the amount of money your thought you would have at retirement.

So let’s just see what the new Fed chief, Janet Yellen, has said about inflation and you decide how her actions might affect you. As president of the San Francisco Federal Reserve Bank four years ago, she said, “Accommodative policy is appropriate, in my view, because the economy is operating well below its potential and inflation is undesirably low. If it were possible to take interest rates into negative territory, I would be voting for that.”

For the average American purchasing the goods and he needs to cover daily living and support his family what the heck is a “undesirably low” rate of inflation? What does that mean for you and your future.

For that matter what does an “undesirably low” rate of inflation mean for corporations and job formation. If a company knows that inflation is low it knows that the prices of the raw materials that it uses to produce its products will be relatively stable and it can plan for the future. Corporations that are able to plan for the future look to grow. Corporate growth generally means job creation. Corporations love stability.

I have read that Janet Yellen is very smart. However watching her on television my initial impression was that she specializes in using the largest amount of words to convey the smallest amount of information. The Fed just made their latest pronouncement. As the new head of the Fed here’s her latest pearls of wisdom as quoted in the New York Times after she had just said that she was planning to keep short-term rates near zero “for a considerable time.” When Yellen was asked to define “a considerable time,” Ms. Yellen responded, “This is the kind of term that’s hard to define, but it probably means something on the order of around six months or that kind of thing.”

We know what interest rates near zero mean for the people trying to save for their future. We know what interest rates near zero have meant for retirees whose money is invested in bank accounts and cds.

I think most people will agree that very little of the stimulus has trickled down to the average person. It’s mostly gone to Wall Street, Financial Institutions, and the Banks that caused the problem. And the ironic thing is that its the “average” person who has been footing all of the bills through their taxes. It’s the average person whose hard earned cash is being spent and whose future is being mortgaged to bail out the institutions that caused the problem in the first place.

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