Special note: Merri and I suffered radiation poisoning from Chernobyl so I have prepared “Seven Ways to Protect Against Radiation.” Learn how we saved our lives then… to help your health now. Get details here.
Our messages at this site have long been focused on five ways to protect against inflation… move to lower cost living… invest in commodities… equities… real estate…. or have a micro business.
Many recent events have pulled our attention East and then West. The Middle Eastern revolution and the Japanese earthquake… tsunami and nuclear plant failures may seem distant but we should not ignore how they impact North America.
In the short term… these events can cause an economic melt down. Middle East turmoil has already impacted oil prices. Now the Japanese stock plunge is causing alarm across the rest of the Asia-Pacific region and weakening the insurance industry.
Yesterday, March 15, 2011, the Japanese stock market dropped 10 percent.
South Korea’s Kospi lost 2.4 percent, Australia’s S&P/ASX 200 fell 2.1 percent, Hong Kong’s Hang Seng index dropped 2.9 percent, India’s Sensex fell 1.5 percent, Singapore’s benchmark slid 2.8 percent and China’s Shanghai Composite Index fell 1.4 percent.
The yen rose as Japanese investors repatriated funds as a precautionary measure against risk and to pay for reconstruction. The other traditional safe-haven currencies, the Swiss franc and the dollar, soared. Oil prices took another hit on fears over the impact on global consumption.
European stocks slumped. German shares fell the most down 3.2 percent. The French CAC-40 dropped 2.5 percent and London’s FTSE 100 index fell 1.4 percent.
Wall Street dropped steeply before bouncing back. The Dow Jones industrial average fell almost 300 points and the futures market, plunged to such a degree that the New York Stock Exchange invoked a special rule to smooth volatility.
The Dow closed down more than 1 percent.
Falling stock prices can add pressure to already stressed pension funds.
However there are three major long term inflation considerations as well.
First, these events complicate an existing problem in North America and Europe that I especially noted when upon reading the February 13, 2011 New York Times article entitled “States Aim Ax at Health Cost of Retirement” by Steven Greenhouse.
The article began by saying: Governors and mayors facing large deficits have set their sights on a relatively new target — the soaring expense of health benefits for millions of retired state and local workers.
Ken Allen, a union official in Portland, Ore., says workers sacrificed to keep fully paid health care.
This note caught my attention since my father worked for the city of Portland. He was a zoo keeper.
Article from Oregonian about my sister and me raising a baby lion. We loved dad’s job. He brought many lions and tigers home for us to care for. At ten years old, this was cool.
What a great occupation for your dad to have when you are a kid! But this is now the remains at the zoo.
Old Portland Zoo after it was abandoned… picture taken February 1960. Will state, city and county employees be abandoned as well?
Having grown up during the depression of the 1930s, “job security and benefits” were Dad’s mantra. Though he passed many years ago, my mom still receives benefits which I have noted are now being cut.
Excerpts from the New York Times article explains why: As they contend with growing budget deficits and higher pension costs, some mayors are complaining that their outlays for retiree health benefits are rising by 20 percent a year — a result of the wave of retirements of baby boomers and longer life expectancies on top of the double-digit rate of health care inflation.
The nation’s governors face a daunting $555 billion in unfunded liabilities to finance retiree health coverage. The Pew Center on the States calculated those long-term obligations last year, saying New Jersey had the largest amount, $68.9 billion, with California second, at $62.5 billion.
Michigan officials are stunned by the looming challenges of paying retirees’ health benefits, along with pension costs. “It’s pretty astronomical,” said John Nixon, the state’s budget director. “What’s happening with post-retirement health care is the biggest piece and biggest surprise.”
“The issue isn’t to attack these folks or go after them,” he continued. “The main issue is how do we deal with this liability.”
In state after state, the changes are occurring rapidly. For example, New Hampshire has stopped financing health insurance for many future retirees, while North Carolina has begun requiring state employees to work 20 years, up from five years, to qualify for full retiree health benefits. Michigan officials complain that retiree health obligations consume one-seventh of the state’s payroll costs, and New York City is slated to pay $2 billion toward retiree health next year.
In Omaha, officials are seeking to work with their public-sector labor unions to have future retirees begin contributing toward their premiums.
Omaha officials predict that their retiree health costs will quintuple, to $111 million, by 2020, at that point consuming nearly a third of the city’s budget.
Richard O’Gara, Omaha’s director of human resources, put the numbers in perspective. “We’re going to reach a point where in five years, retiree health care will cost us more than employee health care,” he said, adding that was partly because the city was shrinking its work force and partly because retirees used far more medical services than active workers.
The second long term inflation consideration is the impact on pensions and health insurance created by health problems in Asia and North America created by a year long rain of increased radiation from the Fukushima Daiichi complex. The health impact may or may not be large. It is too soon to tell.
Radioactive materials that decay spontaneously produce ionising radiation, which has the capacity to cause significant damage to the body’s internal chemistry, breaking the chemical bonds between the atoms and molecules that make up our tissues.
The body responds by trying to repair this damage, but sometimes it is too severe or widespread to make repair possible. There is also a danger of mistakes in the natural repair process causing cancer.
At best though, this may be one more stress on Asia’s and North America’s already stressed old aged costs which will enhance inflation.
The third inflationary factor is simply replacing the billions of dollars of infrastructure destroyed in the earthquake and tsunami.
Inflation is created when there is more money (demand) than goods. At a time when the environment is already shaken by humanity’s material demands… now there is this added cost. Japan will be buying more oil… more concrete… more steel… and will require more food from abroad at the same time the nation produces less. (The Japanese government already has serious debt and deficits 6.9% of its GDP).
Inflation was with us before revolutions began in the Middle East. Inflation was with us before Japan’s earthquake. Inflation is more likely to accelerate now. Many think of Japan as financially prudent but its debt as a percent of GDP (according to a report by economichelp.org) is the second (after Zimbabwe) highest in the world.
Other countries considered to have excessive debt are Italy, where debt is equal to 115% of GDP, Greece 108% of GDP and the USA 92%. Japan’s debt however is 192% of GDP now and according to a Bloomberg report on March 15, 2011, Japan’s sovereign bond risk has already risen to record highs after the nuclear plant explosions.
A relatively orderly morning gave way to near panic across local credit-default swap markets.
The Bank of Japan added 8 trillion yen ($98 billion) into money markets, adding to yesterday’s record cash injection to secure financial stability. All of these rising interest rates and this extra liquidity fuels inflation… everywhere.
This is a time for the world to pull together. Our neighbors… East and West need help. This can be good… global sharing… thinking beyond the illusions of borders because in the end we are all the same… brothers and sisters, moms and dads… children… husbands and wives… lovers.
Man’s recorded history shows that we do learn… grow and that the world continues to become a better place for all because of global human commerce and cooperation.
Yet history and experience suggest that we must also be prepared for inflation that is caused by the shifts and changes that come.
Rethink what you can do about the five ways of combating inflation.
Special note: Merri and I suffered radiation poisoning from Chernobyl so I have rushed out this report, “Seven Ways to Protect Against Radiation.” Learn how we saved our lives then… to help your health now. Get details here.
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