Tag Archives: inflation

General Investing

Fixed Rate Bonds ‘Effective Tool To Beat Inflation’

Fixed rate bonds continue to dominate the higher end of the savings market.

Although these savings accounts offer guaranteed returns, there is a small gamble involved when using fixed rate bonds, as the general census follow the Bank of England base rate so there is no guarantee that you will continue to benefit from the best rates throughout the full term.

On the other hand, the base rate can also remain low or fall significantly as we saw when the recession emerged. In this case if you were lucky enough to put your savings into a fixed rate bond you could still be earning well above the average.

Some might think that because the base rate is at its lowest level on record, it can only go one way – up. But on closer inspection you will see that it hasn’t moved in over 18 months, and with the inflation rate exceeding 3% for the fifth month now, unless you find an alternative savings engine your savings account rate is unlikely to be strong enough to avoid the effects of erosion.

A basic rate tax payer currently needs to be earning at least 3.88% from their account to stop inflation eroding their savings, while a higher rate tax payer must earn 5.17% – a rate that’s unheard of in today’s market.

Savers hit hardest by the rise in inflation are those that rely on the in interest earned from their savings as a source of income, many of whom are pensioners. The average savings pot held by a basic rate tax payer is in effectively being eroded at an annual rate of 2.51%.

Darren Cook, spokesperson for Moneyfacts.co.uk, said: “Inflation is a stealthy enemy for savers and when rates are low, it quietly erodes the spending power of a hard earned nest egg. Savers may have had a short respite from a marginal fall in inflation, but savings rates have hit a plateau and may be there for a while.

“The average one year fixed bond rate has fallen from 3.07% in January to only 2.54% today and the average five year fixed bond rate has fallen from 4.56% to 4.08% for the same period.

“The average instant access savings rate is still at rock bottom at a rate of only 0.74%. The only trigger for any improvement in savings rates may be a surprise increase in the Base rate by the Bank of England, but this is most likely not to happen soon.

“To just break even, higher rate tax payers need to find an account paying 5.17%, a level that is nigh on impossible to achieve.

“Only 87 out of a possible 1,244 accounts allow a basic rate tax payer to just break even at 3.88%. 51 ISA accounts beat inflation at 3.10%.

“It is difficult for savers to try and beat inflation but at best, they should try and stay within an arms length and try and weather the storm of low rates and high inflation.”

Some economists believe that the base rate will remain at it’s historic low of 0.5% until 2014. If this were the case, then by investing in a 4-5 year fixed rate bond could allow you to earn at rate of 4.75% – around 2% higher than some of the best savings accounts on the current market. ICICI fixed rate bonds offer a range of terms and sit at the top of many comparison tables.

If you’re willing to lock your funds away for a period of 5 years, you could earn 4.75%, with the ICICI fixed rate bond.

Forex Trading Articles

The Inflation Fighting Factors Affect The Forex Market

We all know that the forex trading market depends a lot on the fluctuations and the trends of the market and many such various factors such as the economic policies and the inflation of the country. The inflation is an unavoidable decision taken by the government. Any country’s economy which is on a growing spree will surely experience this. Whenever the inflation is higher, then the customers have to bear the expenses and have to pay more for the high priced goods. The forex trading too will be experiencing the effect of the inflation. Almost every country economic policies decide to put the brakes on the inflation. The central banks of the countries and the bankers have to struggle against the rising inflation and all kinds of the monetary decisions in the coming years. They deal with them by making some important strategies and the plans to curb the inflation pressures such as higher interest rates to increase the money transactions.

All the strategies adopted by the governments of different countries helps in reducing the fast rise in the prices when they are executed. These policies can help in providing the long term ideas for the trade forex market. Most of the times, the central banks of the countries increase the interest rates which seems to be their preferred way of action fighting against inflation. This is because it is the simplest and the preferred strategy and also it works fine as the results are pretty quicker as compared to the other techniques and the methods. The economic bodies try to raise the benchmark which a lot of retail bankers and the commercial bankers refer to while making the client loans.

Some of the products are like the student loans, mortgages and the car loans and the commercial loans for the forex market. When the increased rates are announced then automatically the value of the money increases. This is not very good news for the consumers or the companies because that means lesser money flow in the market. The steps to increase the requirements can reduce the inflation of a country’s currency.

Market Analysis

Why the Current Inflation Can Lead to Hyperinflation

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The phrase, ‘things will get worse before they get better,’ is a very convenient quotation that can soothe the frayed nerves of the American people.  Besides, there is nothing wrong in hoping to get better results from the current crisis.  The oft repeated phrase however could be problematic as it instills a false sense of security among Americans that the problem is not grave.  There is a high probability that things may get worse and could result to economic collapse.  This means the rampaging inflation today could quickly transform itself to a horrible hyperinflation.  

Inflation is a natural economic phenomenon.  In fact, it could have some positive impact especially in counteracting extreme periods of economic deflation.  Previous American economic history pointed to recurring periods of deflation followed by inflationary spikes to balance the natural free market economy.  Economic contractions therefore are not alien to American society especially after periods of turbulent wars and political turmoil.  The economy has contracted many times due to scarcity of money supply.  Lack of money supply can halt economic growth but could also trigger inflationary spikes.  After a downturn, the economy corrects itself and returned again to a period of growth. 

Today’s inflation however is not triggered by economic contraction due to scarcity of money.  The United States is now experiencing a dangerous kind of inflation because it was triggered by an overflow of dollars in the real economy.  The economy therefore is brimming with money thus pushing the prices of goods and services at an unprecedented level.  The problem with this scenario is that the more money printed without gold backing, its value will eventually diminish.  So even if you have more money in your hands, its real value would be nil which makes commodity products unreachable or expensive.

The United States economy therefore is facing the prospects of hyperinflation.  Hyperinflation is uncontrollable inflation which usually results to the debasement of currencies.  With a hyperinflation, the money in your hands will be worthless.  So you could have box loads of money but you can only buy a loaf of bread.  This is the current path being treaded by the U.S. economy.  The Federal Reserve is bent on infusing more cash into the economy by intensifying the printing of paper money.  However, you need to take note that the current inflation has been the result of overflowing money in the economy.  So if more money is infused, this could only lead to hyperinflation and economic collapse. 

Hyperinflation has been ravaging some countries like Zimbabwe.  In that country, the basic unit of currency is 1 trillion Zimbabwe dollars.  So even if the people has a billion Zimbabwe dollar, they still cannot buy a decent meal.  This could happen to the United States if the current monetary policies will continue.  By printing more U.S. dollars out of thin air, the value of the buck could be eroded drastically thus transforming the current inflation into hyperinflation.  When hyperinflation sets in, there is no way for the U.S. economy to regain lost grounds.

Market Analysis

How Can You Survive Food Inflation

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There is no doubt that inflation has been hitting every sector of the United States economy.  This means basic commodity prices are going up at an alarming level.  Food inflation for example is particularly debilitating for most Americans.  As the common folks see their money lose value due to hyperinflation, more and more commodities become out of reach which could lead to hunger, malnutrition, and more crisis.  You can survive this crisis by sharing in the growth of agriculture and looking for alternative real currencies such as silver or gold.  

Food inflation means higher prices of agricultural products.  This spells trouble for non-agricultural producers but signals unprecedented growth for the ordinary American farmer.  Agricultural products, like silver and gold, have intrinsic natural values.  That is because people will not stop to eat no matter if the inflation goes hyper.  People around the world will keep on eating food even if there is a global crisis.  So if you can shift your focus to agricultural production, you can ensure a steady food supply in your home and you can enjoy the windfall of food inflation.  Because agricultural products have high prices, you can certainly enjoy big profits from them. 

The Federal government therefore should not focus on providing bailout money to irresponsible financial institutions and the money market.  In the first place, these banks, fund managements, and lending companies are responsible for the current mess created by the financial crisis.  These institutions abused the money market by speculating on high leveraged finance investments.  Because the paper money economy in itself does not produce value, it is bound to collapse once it reached a saturation point.  The onset of the financial crisis is a reversal that seeks to correct the abuses created by banks.  However, instead of letting market forces correct itself, the Federal Reserve and the US Treasury Department started exposing the economy to hyperinflationary threats by buying back unsupported assets and toxic debts. 

There is a growing penchant today to print more money to fund bailout initiatives and propel stimulus packages.  Such economic direction is practically a suicide path as the infusion of more money in the economy tends to hyper inflate the prices of commodities and services.  What the Federal government should do is to go back to basics.  This means focusing on agricultural production and increasing productivity and food security.  The Fed should also refrain from arbitrarily printing fiat currency as this could further weaken the dollar which could lead to its collapse as the international reserve standard.  Currencies therefore should be backed by silver and gold again in order to reflect the real value of paper money. 

There is no end in sight for the current crisis because authorities are taking the wrong economic medication.  The only way out to curb hyperinflation is to focus on agricultural production to drastically stop food inflation.  Governments as well as individual investors should also heavily invest on silver and gold in order to create real value for the economy which could arrest the spiraling inflation.

Market Analysis

Protect Retirement Accounts And Eliminate Inflation Worries With a Guaranteed Income Pension

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Many people are worried about inflation in the near future and how this can affect our cost of living. Oil and energy are on the rise and with interest rates at a all time low. This is a valid concern that needs to be addressed. Those of us that are in the work force today should be concerned with inflation, however it will not have as much devestating affect us than on those that are retired or soon to be retired. If inflation goes up, so will our income. Retirees on the other hand have a set limited income base on which to live on and inflation can cause them to make major adjustments. If retirees have their money in the market they are exposed to the huge up and down swings the market has been experiencing the past few years. Alway remember that the market is a gamble, it has potential to grow fast, however it also has potential to have huge loses. Do you want to put your nest egg in this type of predicament.

I would strongly recommend against this strategy.If retirees have money in a bank CD, they have seen their return go from 5% to 1.5% in the past 5 years. Not a good source for income if you interest keeps dropping so does your income. Example a $100,00 CD at 5% payes $5,000 a year in interest, the same CD at 1.5% pays only $1,500 per year. If you were relying on your interest as a source of income, you income dropped from $5,000 a year to only $1,500. Thats why we recommend to consider a guaranteed pension style income. This type of retirement plan eliminates the worries about inflation, stock market volatility and low interest rates. You know that once you retire you will get a guaranteed paycheck for as long as you live. Knowing exactly how much money you can count on every month will make it easy for you to design the retirement life you want.

This year with the new law that allows us to rollover our qualified IRA’s and 401(k)’s into a Roth, with two years to pay the taxes owed. This will make retirement even better if no income tax has to be paid on income from our retirement accounts. So for some not all, you can roll over you retirement accounts into a tax-free retirement account, develope a pension with this money were you will recieve a guaranteed income check for the rest of your life and that money in turn will be also tax free.