War, Oil, Inflation Connections

Let's see if we can make some conections between war, oil, and inflation. After all, war and oil have dominated the news these past weeks. As for inflation, well, we've talked about this insidious freak that continues to wreck the purchasing power of the dollars we earn from our diligent work throughout our lives.

While inflation never leaves us, we hope that - at least for the present - war with Iran will cease. After all, hasn't the Big Orange Guy said it would and soon? Oh, right, he said that, but then he seems to contradict himself, sometimes in the same breath. (What's new?)

And oil, ah, oil. It's not just the gas for our cars, but it's in so much of the stuff we make. So when it's price jumps, market quake, and the media gets in a tizzy. But...it seems it's going to come back from its journey to the stars and settle down, assuming the war begins to settle as well.

Then again, its settling now seems to be reversing course, just as the words that this war is almost done seem to lose their savor in the face of the facts. One thing to note in our connection theme: higher oil will result (and has in some instances, like the gas pump) in higher prices for stuff which - you guessed it - manifests as price inflation. 

As for the war and the direction of the oil price medium to long-term, we really know little. Only the coming days and weeks will tell.

As for inflation, well, this we know much. We won't try to recap the many times we've pointed out how inflation is the great killer of our wealth. It just is. There's no question about this. And yet, we find a relatively smart investment guy's spin on this sad and destructive tale a bit puzzling.

While we pretty much avoid too much exposure to investment stuff we find here and there, sometimes we stumble on something that seems to contradict our own beliefs. That's one of our criteria for giving a read or listen. It's good to hear opinions that don't agree with ours. Stimulates the brain, which can so easily be locked into a fixed set of beliefs.

Not that fixed beliefs are always bad. After all, anyone with a whit of religion likely believes things that are fixed. Being Catholic, we've got a good solid set of items that don't change, better put, never change.

On the other hand, most things related to the world (as opposed to God) do change. And here we must keep an open mind so that our perception of the world doesn't become locked into a set of fixed beliefs that, well, don't conform to reality.

Enough with the diversion! Circling back to the investment guy, we read followed a link to Lance Roberts at RealinvestmentAdvice.com. We've read his stuff from time to time in the past and he's got a brain. Don't always agree with him, but at least he's not a parrot or an idiot as so many are in the financial media. 

He makes an argument that those who claim the dollar has been and continues to be "debased" are wrong:

- the U.S. dollar will not now or in the future lose its status as the world's reserve currency.

- that Stable Coins will be an additional and significant source of demand for US Treasuries 

 (The whole article HERE.) 

These are certainly not unique opinions. Indeed, they may be true for the foreseeable future. They serve as an antidote to those who predict that "fall" of the US dollar from its lofty perch as world reserve currency. 

If you're not familiar with just why the status of the US dollar as reserve currency is a big deal, well, do try to get up to speed. It affects all of us, and so its demise would be a blow to all of us (or at least most of us who live in the U.S.) But that's not a subject for today.

As for Stable Coins, we didn't pay much attention to these until recently. If you're familiar with them, you'll know that that second point - increased demand for USTs is pretty much on point.

So much for that.

But it's another point that got our real attention: For some reason, Mr. Roberts fixed on the idea of "debasement" - as in debasement of the U.S. dollar. He disputes this. And his dispute reinforces his point about the US Dollars standing as reserve currency. His claim is simply this: The USD has not been debased.

Now, after carefully reading his argument here, our take away was this: It's more a matter of semantics rather than substance. Semantics are concerned with the study of the logical aspects of meaning. An important endeavor to be sure. But in certain cases, semantics can quibble over meaning in a fashion that exceeds any practical usefulness. And that's how his argument read to this admittedly not brightest bulb in the financial expert drawer. Maybe something was missed. Is so, and you read the article, please weigh in.

In any case, it was his comment about inflation that really stood out.  

"Inflation, while real, is not debasement in the historical sense. It’s the erosion of purchasing power on uninvested dollars in an expanding economy." 

See the twist here? "Uninvested" dollars. Interesting twist isn't it? Doesn't it sort of put the blame on us for the loss of purchasing power of the hard-earned money we were paid for our efforts at work?

Question: Why is it on us to retain purchasing power in our money? 

One wonders if these words spring from the mind of a guy who makes his living investing money for others. Actually, we really don't have to wonder. And without judging the guy, or casting aspersions, we might nevertheless take his words with more than a grain of salt.

We might turn back to the 19th century and the historic expansion of economies in the nations that gave birth and sustained the Industrial Revolution that incrementally increased the productive capability of the economies of nations in the Europe and America. And yet the U.S. dollar's purchasing power increased over time throughout the 19th century. And this without the need to invest in the stock market.

Imagine that!

But why be surprised. Our "financialized" economy has severed us from even the memory of those times. Many of us are convinced we must put our money "at risk" in order to not simply get a return, but simply to preserve the purchasing power of our money.

See how this feeds the hungry mouths of the professional investment industry?

Again, nothing personal against Mr. Roberts. He's just doing his job. And we can even consider that he might sincerely believe what he's saying. 

Then again, even as we question the logic and motivation behind Mr. Roberts thesis, we are still left with awful reality of inflation eating away at our money, steadily, without respite for now over a century - since the creation of the Federal Reserve in 1913.

There's simply no denying that.