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Inflation is back. It’s official, and you can blame costlier gasoline and other fuels. The tab for common services like a hotel stay and garbage removal are jumping too, as is the sticker price on packaged foods and many other household items. Companies are finding that they can pass on part of their soaring raw-material costs. There is a general consensus among American economic circles that interest rates are on the rise. And this concern is beginning to spill across the border into Canadian economic circles as well.

Typically there is an inflation that the government measures and the ‘other’ inflation that we are all used to feel but cannot see. Inflation that we all feel but can’t see comes in many forms. For example, real estate prices have gone through the roof, so cash buyers are paying through the nose. Borrowers are increasingly resorting to floating-rate and interest-only loans, especially in the U.S., which all but guarantee that they will pay more over the life of their loans. But Canadians are poised to follow suit with the spread of the ever more popular ‘Powerlines’ and credit cards secured by real estate which, once again, have the deleterious effect of keeping you into debt for the rest of your life.

We all face notoriously soaring insurance premiums, deductibles and co-pays as employers shift more of the burden onto employees. Here in British Columbia, for example, Strata insurance premiums have more than doubled in the past year, with strata corporations - especially the financially weak - having no choice but to allot the extra cost to individual property owners.

Even Alan Greenspan, the once revered and now outgoing Chairman of the Federal Reserve Bank, is coming under fire. Once known as the ‘Maestro’ for his impeccable talent at predicting economic behavior, and after being treated like royalty for presiding over the longest economic boom in the nation’s history, Greenspan is now being accused by a small but vocal group of economists of presiding over the U.S.’s high consumer debt, low personal-savings rates, declining dollar and potential real estate bubble. And all this comes at a time when the U.S. is dependent more than ever on foreign money to sustain growth.

The dependence on foreign capital, Asian in the West and European in the East, is a great source of concern for Canada as well. As China is becoming a major economic player and is fueling its own economic growth, and as Europe is coming to grip with the reality of an oversold, overstrong, overvalued Euro compared with the relative weakness of many European economies, the worry is that this foreign injection into the Canadian economy will soon evaporate, thus leaving domestic growth without fuel …. the typical Mercedes without gas.

So where does all this leave mundane folks like you and I? All I can tell my readers and real estate aficionados of my blog is:

BEWARE OF YOUR MORTGAGES !!

Luigi Frascati

Luigi Frascati is a Real Estate Agent based in Vancouver, British Columbia. He holds a Bachelor Degree in Economics and maintains a weblog entitled the Real Estate Chronicle at http://wwwrealestatechronicle.blogspot.com where you can find the full collection of his articles. Luigi is associated with the Sutton Group, the largest real estate organization in Canada, and is based with Sutton-Centre Realty in Burnaby, BC.

Luigi is very proud to be an EzineArticles Platinum Expert Author. Your rating at the footer of this Article is very much appreciated. Thank you.

Tags: economics, federal reserve, finance, inflation, priceseconomics, federal reserve, finance, inflation, prices

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Prices of residential real estate, both asking and selling prices, have declined steadily in many markets throughout the country these past few months, but for reasons that have nothing at all to do - not even remotely - with the dreaded real estate bubble so many ‘bubbleologists’ were so fond to predict. ‘Bubbleologist’, it will be recalled, is the term I have coined specifically to encompass those individuals - all of them of majority age - who specialize in the very fine art of wasting my time.

An economic bubble occurs when speculation causes prices to increase, thus producing more speculation and subsequent price increases. The bubble bursts when prices of goods are so absurdly high that consumers either refuse or cannot afford to purchase, thus sending demand tumbling down. In essence, an economic bubble is a particular market condition, wherein prices of commodities or assets increase to levels so high as to no longer reflect the utility of usage of the commodities or assets being exchanged.

The main cause of an economic bubble is speculation. Speculation is one of the many forces that act on capital at any given time. In theoretical Economics, speculation is defined as ‘the acquisition of financial or capital assets made solely to quickly profit from fluctuations in their prices, or of goods or commodities with no real intent to consume or otherwise use them for production’. Speculation, however, does not seem to be the root cause of the price deflation occurring in many real estate markets.

The main cause of price deflation in the buying and selling of real properties seems to be due to the double effect of 1) a tightening of the money stock which, in turn, alters the cost of borrowing, i.e. a shift in interest rates, and 2) an increase in inventory supplies. Specifically the monetary policy initiated by the Maestro, Alan Greenspan and adopted by the new Fed’s Chairman, Prof. Bernanke, is now beginning to have an impact on housing markets in the United States and, to a lesser extent by reflection, in Canada. On August 8, 2006 the Rate-setting Committee of the Federal Reserve System voted to halt the interest rate hike, holding the federal funds rate at 5.25 percent. This signalled a reversal in the trend that has characterized US monetary policy for the past seventeen times in a row.

The Fed admitted that core inflation is high at 2.4 percent annualized for the half-year ending June 30, but the expectation is that it will begin to abate in the latter part of 2006. If it does not, they will start tightening the money stock once again. The Fed has long relied on three factors to keep price pressure in check: quiescent labour markets, fat profit margins and its own credibility. It remains sure of the last, but can no longer count on the first two.

This last meeting reflected the fact that productivity grew at an annual pace of just over 1.1 percent annualized in the second quarter, not nearly enough to offset a recent acceleration in wages. Which means that for all the fuss we hear about oil, labour is the commodity with the biggest impact on inflation, accounting for two-thirds of production costs. Exactly for this reason, therefore, Prof. Bernanke has made a reference and has given a warning at the meeting of August 8 of the dangers of what he terms ‘inflationary psychology’. If people suspect that faster inflation is here to stay, they will anticipate it in their wage claims and price-setting, thus confirming their own suspicions.

This warning is very well heeded, if one considers that according to a survey conducted in July by the University of Michigan, American consumers expect the prices they pay to rise by 3.2 percent over the next twelve months. And this includes, of course, housing.

The slowdown in growth evident in the last quarter and reflected in the real estate sector was not an accident. It is due to the rate increases that the Fed has voted consistently over the last seventeen meetings. The Fed’s latest projections, unveiled on August 8, forecast growth of 3.25 - 3.50 percent this year and 3 - 3.25 percent the next, slow enough to stop core inflation from rising much further.

Therefore chances are high the real estate market will continue to be generally stagnant for the next few month, with regional exception. Although no bubble is on the horizon.

Luigi Frascati

Luigi Frascati is a Real Estate Agent based in Vancouver, British Columbia. He holds a Bachelor Degree in Economics and maintains a weblog entitled the Real Estate Chronicle at http://wwwrealestatechronicle.blogspot.com where you can find the full collection of his articles on Real Estate Economics and Finance. Luigi is associated with the Sutton Group, the largest real estate organization in Canada, and is based with Sutton-Centre Realty in Burnaby, BC.

Luigi is very proud to be an EzineArticles Platinum Expert Author. Your rating at the footer of this Article is very much appreciated. Thank you.

Tags: bernanke, bubble, estate, fed, federal, housing, inflation, prices, real, reserve, speculation, systembernanke, bubble, estate, fed, federal, housing, inflation, prices, real, reserve, speculation, system

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“My people are destroyed for lack of knowledge.”

Hosea 4:6

This short article will address the topic of

inflation, its causes, the effects thereof, and

how to safeguard against it.

Do not fall victim to inflation, i.e., the

government manipulation of your money. Let me

explain.

I. What Causes Inflation

Have you ever heard of the Federal Reserve? Well

then you know what causes inflation. The “Fed” is

the engine of inflation, by self-admission. But

how can that be?, you ask. The “Fed” is a branch

of the federal government, no?

It is not. It is neither federal, nor are there

any reserves - anywhere - to speak of. Time was,

when the American dollar was indeed as good as

gold, for it was actually backed by gold. These

days, the dollar is no more than a three cent

piece of paper(the three cents includes the price

of ink), worth anything only because our

government says it is. This is to say, that the

dollar has value due only to government’s faith in

the people’s ignorance, or, more accurately, the

people’s ignorance of their government’s lack of

faith.

The story of the Federal Reserve exemplefies this

infidelity, the greatest fraud ever perpetrated on

the American people. Even the most cursory

investigation will reveal that the “Fed” is a

private corporation, a “cabal” of bankers, if you

will. As with most corporations, it has

shareholders - mostly foreign, in this case. This

bears repeating: the controlling interest in the

company known as the Federal Reserve is European.

And I thought we won the Revolutionary War(!)

Let us pause here. My dear reader will agree

that the aforementioned facts are cause for

concern: of much import and gravitas, for you

academic types. For the rest of us, it is a matter

of everyday life, indeed, one of survival. Truth

be told, and at the risk of sounding like a

Democrat, it is getting harder. Let’s clear the

air, and get down to brass tacks. Does your salary

double every ten years? It had better, because the

average price of a new car does. Clearly we are

dealing with inflation here, and clearly

government-given figures regarding inflation are,

well, underinflated. What is not as obvious is

that there need not be inflation.

But first, a question: What is in your pocket at

this moment? Is it a one dollar bill?

Congratulations! You are one dollar in debt! Do

you perhaps have a twenty? Then you are twenty

dollars in debt. For this is all that the dollar

is, no more than an instrument of debt. It is

simply the federal government’s obligation to the

Federal Reserve, with you - the American people -

pledged as collateral.

Observe the back of a cancelled check from the

IRS: it will often state, “Pay any Federal Reserve

Bank, for debts incurred by the US Gov’t.”

It works like this: a)government needs money to

operate; b)government borrows money from private

bank(Federal Reserve); c)private bank prints money

“out of thin air”!(This is known as fractional

reserve banking, the discussion of which is beyond

the scope of this article. But I urge the reader

to conduct his own investigation.); d)since

government gets its money from the people,

government issues legal tender(”dollar”), in

effect, “passing the buck”; e)ignorant American is

now forever enslaved by debt, owing Federal

Reserve what he thought was his own money.

How’s that for representative government?

“The one aim of these financiers is world control

by the creation of inextinguishable debts.”

–Henry Ford

Now you know what the dollar is.

This brings us to the underlying causes of

inflation. Let us remember that the dollar is an

instrument of debt, i.e., a loan. As such, it must

be repaid, and with interest. Where will the money

to the pay the interest come from,however, if the

principal itself never existed? Why, it must be

printed. The bankers are a clever lot, admittedly.

The most important factor causing inflation then,

is the interest charged by banks(the shareholders

of the “Fed”), the costs of which are then passed

along to consumers in the form of higher prices.

Inflation is, purely speaking, an inflation of the

money supply, as required simply to pay this

interest. The money supply, or number of dollars,

is inflated, or expanded, thereby reducing the

value of each and every individual dollar.

Know that it is not, generally speaking, that

commodities are rising in price, but rather that

the dollar is losing value. With every new dollar

that is printed, each pre-existing dollar loses

corresponding value. And when you have a dollar

that is worth less, naturally, it will take more

of them to make your purchase.

Worse yet, because all our “dollars” are debts

loaned into circulation, and with interest due,

the more of them there are, the greater the impact

on inflation. In other words, inflation is not

only here to stay, it must, by definition, only

get worse.

Thusly, and seemingly, prices rise. In reality,

you are wanting more of the devalued dollars for

the same amount of goods. In the absence of a gold

standard, this is not only entirely possible, but

encouraged.

“In the absence of a gold standard, there is no

way to protect savings from confiscation through

inflation. There is no safe store of value. If

there were, the goverment would have to make its

holding illegal, as was done in the case of

gold… The financial policy of the welfare state

require that there be now way for the owners of

wealth to protect themselves.

“This is the shabby secret of the welfare

statists’ tirades against gold. Deficit spending

is simply a scheme for the ‘hidden’ confiscation

of wealth. Gold stands in the way of this

insidious process. It stands as a protector of

property rights.”

–(a younger and much more honest)AlanGreenspan:

Gold and Economic Freedom

As we can see, inflation is a hidden tax, and

like the income tax itself, is the interest we are

paying to the Federal Reserve. It is no

coincidence that both the “Fed” and the IRS were

created in the same year, just as it is no secret

that prior to that year, 1913, the income

tax(along with property taxes, incidentally) were

nonexistant. The constitution, in fact, strictly

prohibits such a direct tax on income.(Where is

the ACLU on this?) The inescapable conclusion is

that the more government spends, the more the

Federal Reserve profits. It is for this reason

that we have the welfare state we find ourselves

oppressed by.

Did I mention that Alan Greenspan(titular head of

the private company known as the Federal Reserve)

visits the White House on a weekly basis?

Can you say conflict of interest?

Tag: inflationinflation

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