Mission Statement:
To financially empower our clients so that they can achieve their most
important goals and to confidently plan for the future that they envision
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You won't believe where the Federal Reserve
got its inflation target from
Originally posted November 3, 2017.
The world's major central banks have been unsuccessfully trying to engineer 2% inflation in their respective economies ever since the end of the Great Recession that started 10 years ago. OK, so you already knew that. But do you know where all these central banks got that 2% target from? It would actually be quite funny if it weren't true.
Trillions of Dollars and other currencies of sovereign debt has been hoarded by the Federal Reserve, European Central Bank, Bank of England, and the Bank of Japan. The developed economies are awash in debt, in order to jack up their economies, which is a major cause of concern for both markets and economies. It was all done in the name of a low level of inflation.
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You see, deflation is very bad. In a society that is fueled by credit, you need slowly rising prices for borrowers to payback debtors and for municipalities to collect taxes, such as sales tax. If prices go down, borrowers collect less revenue, which typically translates into less profit per unit of goods or services, which then makes debt repayment more burdensome. Municipalities would see a decline in sales tax collections, making it harder to pay civil servants and to pay back bond holders. Wages would go down and layoffs would rise. That's the dark side of deflation, which was an immediate cause for concern for the aforementioned central banks shortly after the Great Recession.
We are much more familiar with the dark side of inflation because we tend not to have periods of deflation. Too much inflation is downright terrible too. Hence, the 2% inflation target - not too cold and not too hot. Here's the shocker about where that figure came from: It was pulled out of thin air; a number blurted out in 1989 by a central banker at the central bank of New Zealand. I mean, literally, someone just blurted it out off the top of his head because it sounded like a good number that would please the most people.
At this point, this inflation target is economic dogma. In today's world, we have plenty of everything; food, metals, smartphones, cars, and whatever else you could think of. In 1989, we didn't have Amazonification and cheap semiconductor chips. It may be time to ask if it's time to come up with a better inflation target, one that could even be lower than 2%; like one based on well-thought-out statistics and evidence.
Now, let's get to Clips of the Week! I host a live stream every Monday through Thursday, at 4:30 PM ET. The name of the show is BE THE BOSS OF YOUR MONEY. It's a show about personal finance, investing tips, business, and perspectives about relevant content and culture. Below are a few clips that we took out of the live episodes that encapsulate the main topic or lesson.
I hope you enjoy them. If you do, please subscribe to my YouTube channel while your watching them. You could catch my show on LinkedIn, Facebook, and YouTube, links below. You could also watch the replays on my social media profiles too.
- Stop taking those silly quizzes on Facebook!
- Estate Plan vs. Will: Which one do you really need?
- Why and when should you update your will or estate plan?
- Are your investments right for you? Here's how to tell.
Here goes:
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Please subscribe to my YouTube channel:
Thanks!
Mitch
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Want to schedule a phone appointment with me to speak about your financial goals? click the "Let's talk" pic.
Or email me directly:
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I opened ClientFirst Strategy, Inc. because I believe that the only way to help my clients potentially achieve their goals is by offering unbiased advice & investment management expertise. To my clients, thank you for your continued vote of confidence. If you are not a client but would like to explore the possibility of becoming one, I invite you to call me directly, visit my website, join my email list, and/or connect with me on social media.
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Mitchell O. Goldberg
AIF®, AAMS
President | Investment Professional
OSJ Manager
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ClientFirst Strategy, Inc.
290 Broadhollow Road, Suite 200 E, Melville, NY 11747
(D) 631-920-6622 (F) 631-920-6624 (C) 516-818-0338
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All the views expressed in this report/commentary accurately reflect our personal views about any and all of the subject securities or issuers and no part of our compensation was, is, or will be, directly or indirectly related to the specific recommendations or views we have expressed in this report. This material is not intended as an offer or solicitation for the purchase of sale of any security or other financial instrument. Securities, financial instruments, or strategies mentioned herein may not be suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. Prices, values, or income from securities or investments mentioned in this report may fall against your interests, and you may get back less than the amount you invested. The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. You should consult with your tax adviser regarding your specific situation. Diversification is a method of managing risk and doesn't protect against loss in a down market. The S&P 500 and Dow Jones Industrial Average are indexes. It is not possible to invest directly in an index. *The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. **The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy.
Securities and investment advisory services offered through NEXT Financial Group, Inc., member FINRA/SIPC. ClientFirst Strategy, Inc. is not an affiliate of NEXT Financial Group, Inc.
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