Mr. and Mrs. Obama Betting Their Money on Inflation

Thirty-one years ago, inflation in a stagnant economy doomed the reelection of Jimmy Carter.  Team Obama denies it to the skies, but inflation is on the march again today in an even more stagnant economy.

The Obama administration reports that the year-to-year rate of increase in the Consumer Price Index has established a trend of increasing inflation.  In November 2010, the rate was 1.7%.  In April 2011, it was 3.1%.  If you buy gas or food or Huggies diapers you know that prices are up, while jobs are scarce and average wages are down.

Fed Chairman Ben Bernanke says inflationary pressures are “transitory.”  He vows to print as much money as it takes to absorb the tsunami of federal debt, keep interest rates low, prop up the too-big-to-fail banks, and hope the result is more lending, more jobs and a revived housing market in time to reelect President Obama in November 2012

Treasury Secretary Tim Geithner echoed confidence about the Obama economic strategy, telling European bankers that inflation is “not high on the list of concerns.” 

Although Geithner admitted that the fiscal policy of the Obama government is “unsustainable in the long run,” he predicted that the jobless rate would fall to less than 8% this year and that the economy would grow by 3.5% to 4%.  Lately, the Federal Reserve has scaled back that prediction to a growth rate of 3.1% to 3.4% and the unemployment rate has gone back up to 9%. 

At the same stage of recovery from the last Great Recession in the early 1980s, the growth rate was twice as fast, unemployment was two points lower and Ronald Reagan’s free market policies were on track to see 20 million jobs created by the end of the decade.

With the exception of filling up the gas tank, public discontent with the direction of the U.S. economy is nowhere more intense than in the debate about whether to raise the federal debt ceiling. 

Survey after survey documents the widening chasm between the people and the ruling elites in this country.  Depending on which poll you read, 57% to 65% of the public is against Congress piling up any more debt at all.  Both Republicans and Democrats tell us that adding more debt is the “adult” thing to do.  The ruling elites want us to believe that when all the credit cards are maxed out, the solution is to get another credit card.

Geithner wails that the sky will fall if Congress cannot spend trillions of dollars more than we have.  Boehner says he’s willing to do a deal on raising the debt limit if only Obama and the Dems will agree to throw the GOP a bone of spending reduction.  Obama wants a “clean” vote on raising the debt ceiling, without any concessions on spending.

Against the backdrop of this political tug-of-war and the nonrecovery of the American economy, this week Obama released his personal financial disclosure form.  What the first family did with its personal money speaks louder than any presidential propaganda.

According to Obama’s disclosure, he and Michelle invested between $2.1 million and $10.25 million of their own money in U.S. Treasury debt.  Specific amounts are not required.  The reporting is expressed as a range.

On the surface this investment seems to confirm Obama’s faith in the ability of the federal government to pay its debts.  But look closer.

U.S. Treasury debt comes in three forms.  Treasury “bills” mature in one year or less.  Treasury “notes” mature in various terms from two years to 10 years.  Treasury “bonds” mature in 30 years. 

To induce investors, the rate of interest paid on the these securities is higher the longer the maturity date.  The higher interest rate is designed to offset the risk of inflation eroding the value of the investor’s dollars.

The Obamas are invested in three blocs of U.S. Treasury securities.  They own a bloc of short-term Treasury bills worth $100,000 to $250,000 in their SEP/IRA.  They own another bloc of short-term Treasury bills worth between $1 million and $5 million, and they own a bloc of intermediate-term Treasury notes worth between $1 million and $5 million.  Most of the Obamas’ investment in Treasury debt pays off in one year or less.

In other words, Mr. and Mrs. Obama fear inflation when they make their personal investments.  Their investments concentrate on short-term Treasury debt, shunning the higher interest rates of long-term Treasury bonds, which carry the higher risk of inflation.

Actions speak louder than words.  Remember that the next time members of this administration seek to convince you that their reckless economic policies are good for this country.