Unca Scrooge

When I was young, one of my favorite comic book characters was Uncle Scrooge McDuck. I coveted the Money Bin, three cubic acres of money, complete with a diving board from which Scrooge would launch to wallow in his wealth. Now I'm worried that I might get one.

Back when $US could be had in silver, Senator Everett Dirksen (GOP minority leader) famously quipped, "A billion here, a billion there; pretty quick you're talking about REAL money." Now DC blithely discusses trillions, and the Fed is buying up government debt with Federal Reserve Notes.

We don't have to go back to the Weimar Republic of Germany after WWI to see the consequences of printing money to fill government budget shortfalls. When I was in Turkey, fall of '01, a cup of tea cost something over a million lira. Folks were discussing how terrible this was in that a generation earlier it would have cost one lira. The solution they arrived at, after I was back home, was to call in all the old lira and issue new currency at a conversion rate of a million old for one new. Zimbabwe now has hundred trillion dollar bills (their printer wants to be paid in Euros).

Our inflation hasn't been that bad, at least not yet. There was, if I recall, .9 ounces of silver in a silver dollar and silver is now selling at something like $18 per ounce. Most of that change came in the 1970's as government financed the Vietnam War and the simultaneous War on Poverty with inflation. By comparison, however, those costs don't approach what is happening now.

I won't argue that letting the financial system collapse was a tenable policy ("liquidate labor, liquidate stocks, ..." Andrew Mellon, ca.1930). Continuing to roll the printing presses, however, is equally untenable. That is not to say it won't happen, to some extent or other. The present evidence of overheated printing presses are the several nascent bubbles (http://www.researchmag.com/Issues/2009/August-1-2009/Pages/The-Obama-Bubble-.aspx) currently rising in the gloom.

But, enough gloom and doom. Every economic situation has winners and losers. I like to discuss winning strategies. Robert Mundell not only got the Nobel in economics (http://www.robertmundell.net/NobelLecture/nobel5.asp) he also applied hiswork by acquiring a villa in Italy. Yes, gold is known as a repository of value, but it is notoriously volatile and only reliable over the long run. On an inflation-adjusted scale and compared to the '70s this run has a ways to go, but gold price only seems to get this high every generation or so. Pretty hard to live in half a million dollars worth of Krugerrands or eagles, too. Winning strategy number 1 - if you don't own your home, consider doing so. Winning strategy 2 is related, if your business is in rented space, consider owning that. Winning strategy 3 goes along with the first two. At the moment, one of the probable bubbles has resulted in generationally low mortgage interest rates. Get one (fixed rate, 30 years). When a Starbucks costs a million, the payment on your half million dollar mortgage at 5% will seem pretty trivial.