COLA BUMP IS LOOMING IN ‘09

Hey John!: With everything in the economy going badly do you think we will get a big cost of living increase for 2009? T.E.

Dear T.E.: Yes, it could be one of the biggest Cost of Living Adjustments – or COLAs, as in the drink – in a long time.

The inflation numbers that determine the increase in payments for Social Security recipients and others won’t start to be calculated until this month. But inflation is running at such a hot pace that the COLA for next year could be in the 4.5 percent to 5 percent range, according to John Williams, an economist who runs ShadowStats.com

Last year’s COLA was just 2.3 percent.

So, whoop-tee-doo, you could end up getting twice that raise this year.

As of May, 2008 the annual inflation rate for the Consumer Price Index for wage earnings (CPI.W) was 4.5 percent – but the only CPI.Ws that count are the ones for June, July and August. Prices are then compared with last year and the COLA is determined.

Now, you might be worried that the government will do something to tamp down the amount of inflation it is reporting so that the COLAs will be lower. That could very well happen.

But the main guy who helps calculate the CPI – his name is Pat Jackman – recently told me that inflation is likely to pick up in the second half of this year because energy costs have been understated by wacky seasonal adjustments.

So Williams and I don’t think Washington will be able to pull a fast one.

Dear John: What did you mean at the end of your recent article when you said, “So, borrow now. Lock in the CD rates later. And stay out of the sun?” Borrow from where? On what, home loans? J.T.

Dear J.T.: It’s very simple.

Interest rates could soon be rising because of fears about inflation and because the Federal Reserve will no longer be able to cut interest rates.

The Fed met this week and for the first time in eight meetings didn’t attempt to reduce borrowing costs. The real story is that interest rates have been climbing even though the Fed wants them down to stimulate the economy. And the cost of borrowing money is likely to continue rising.

So, if you are planning to take out a loan, do it now instead of later. But if you are looking for a better return on your savings, then wait until you see how high rates go and how desperate banks are for your deposit.

“Stay out of the sun” was a whimsical statement that sometimes comes out of my computer without me even knowing it.

Dear John: If a big hedge fund or brokerage house bets big and wrong on the energy markets, will the Federal Reserve bail them out? I’m sure you remember Long-Term Capital. J.D.

Dear J.D.: I’ve consulted with my inner self and here’s what we believe: when (not if) a hedge fund fails because of excessive speculation in the energy markets, Washington will decide that it is bad for the financial system of the US. So the government will find someone to bail out the crumbling firm, which will be accomplished only through the generosity of us taxpayers. And if Washington doesn’t like that answer, I’d be thrilled to be proven wrong.

Send your questions to Dear John, The N.Y. Post, 1211 Ave. of the Americas, N.Y., N.Y., 10036, or [email protected].