JASON MATHEWS: The Big White Elephant in The Room

sac-button-JASON-MonOPINION – There is a Big White Elephant in the Room which is putting a dampening on the United States Economy. You don’t hear Economist, Federal Reserve, Congress or even the White House talk about it. You’re probably wondering what the White Elephant is? The Big White Elephant in the Room is INFLATION!

The definition of inflation is, general increase in prices and fall in the purchasing value of money. The way the federal government measures inflation is through Consumer Price Index (CPI). The problem with CPI is that it does not include food and energy.

The federal government said, inflation went up 2%. Anybody who goes grocery shopping, pays an electric bill or pumps gas to fill up their tank knows it is a lot higher. Housing prices in California are sky rocketing. When you include these factors, true inflation is around 8-9%.

So, you probably wonder why the federal government omits food and energy for a true inflation rate. There are a couple of reasons why.

The government can’t afford to pay out more in social security benefits, pensions and other benefits due to our huge debt.

If people really understood how much harder their check would stretch, people would be demanding higher wages across the board and we would be facing more strikes, protest and class warfare.

Now that we’ve been introduced to the Big White Elephant in the Room, it’s time to develop a plan to combat it. Here are a couple of things you can do.

Control your biggest personal expense, housing. The way you control housing is, if you’re purchasing a home, lock your mortgage rate to a 30 year mortgage. (remove So, that) This ensures your price for housing is fixed for the next 30 years.

If you are not ready to purchase, rent in an area where there is rental control. Here in the Bay Area rental prices have increased 20% in last year. (remove While) If you stay in your current rental, the rate increase would be based off the CPI index of 2%. Not too bad.

Make sure you buy your canned and boxed items in bulk.  It’s cheaper to buy in bulk than it is to buy smaller quantities. More importantly, you never know when there is going to be an increase in food cost.

With interest rates so low, it’s hard to find saving accounts that can keep up with the CPI index, let alone inflation. The best thing to do is, shop around for the best savings account. With your certificate of deposits, look for shorter term rates that benefit you when interest rates go up. Another option is to switch your certificate of deposit for a fixed deferred annuity. The reason is, annuities with the same lock in period have higher interest rates. C.D. interest rates are based on short term treasury; while annuities are based on 10 year yields which have higher rates.

With these few tips I hope you have a better understanding of The Elephant in the Room and how to combat it.

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By Jason Mathews

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    JASON MATHEWS: The Big White Elephant in The Room