
Originally Posted by
Melonie
^^^ agreed that this is true for investors, both individual and institutional. However, where Joe Sixpack is concerned, he doesn't earn interest he PAYS interest. So any increase in interest rates goes straight to his monthly budget in the form of higher credit card payments, higher ARM mortgage payments etc.
Joe Sixpack also doesn't save money he OWES money. So from the Joe Sixpack perspective, other than its effect on energy and food prices inflation is a 'good' thing because a depreciating US dollar also depreciates his debts.
In general, a depreciating US dollar has a mixed effect on Joe Sixpack's 401k ... depending on what sort of company stocks are in the 401k funds.
Again I agree that sooner or later, if the US is going to avoid becoming a 3rd world economy it WILL be necessary for the powers that be to stop printing money like a drunken sailor. However, if the gov't can't use freshly printed money (i.e. money from additional treasury bond sales) to meet its foreign debts, it will have to meet those debts via tax increases !!! This is the essence of the 'caught between a rock and a hard place' criticism of the US fed ... the gov't either needs to print new dollars or confiscate additional dollars via tax increases, and both are bad for the US economy.
Of course there is a third option, but this one has so far been unthinkable. The gov't could actually REDUCE the amount of money it spends to the point of achieving a positive cash flow in the absence of printing new dollars or increasing tax rates. However, this cannot be achieved by reducing the 'popular' (or perhaps politically correct is a better description) budget items alone i.e. military spending. In order to achieve a positive cash flow it would be necessary to A) cut spending on social welfare programs - B) significantly reduce public sector civilian employment - C) significantly reduce entitlement spending i.e. Social Security and Medicare - D) reduce 'someone's' pet subsidy i.e. ethanol / solar / wind / farm / God only knows !
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