I mentioned before that between the inflation adjustment to Social Security, the inflation differential with Albania and the impact of changes in Forex the effective purchasing power of our pension income increased by about 7% in 2022. Of course, inflation was getting worse during 2021, which resulted in a 5.9% inflation adjustment, but it is worse now and the current estimate for next year's inflation adjustment is 8.9%.

At the same time, while the U.S. domestic press is pushing the panic button on the value of the dollar, it is actually going up, and current forecasts are that the Euro will take a massive tumble in 2023. It is actually just a continuation of drop in EUR/USD from about 1.20 to 1.13 in 2021. In the first four months of 2022 it has continued its fall to 1.08. It is expected to continue its drop to about .98 through 2023. In other words, the collapse of the dollar, while possibly valid over the very long term, is just not happening right now. In fact, we are seeing the opposite.

Right now, based upon current forecasts (which, admittedly, might not happen) we will gain an additional 16% in purchasing power through 2022 and into 2023. Why is this happening? Because the Fed has got a very powerful tool in taming inflation and they do intend to use it. That is the nearly $9.0 trillion of investments on its balance sheet, primarily in the form of Treasury debt instruments. The math is simple. There is about $21 trillion of money supply and inflation is too high by about 7%. So, by selling some of its Treasury investments (21 X 7% = 1.47 trillion) it can balance supply and demand and bring inflation under control.

Of course, doing so will spur market driven increases in interest rates. Simply put, if the Fed tries to sell $1.47 trillion in Treasuries, it will not be successful at the face value interest rates. So, it will need to sell them at a discount, which is the same as adjusting the interest rate upward. Doing so will affect interest rates in general which are, as a kind of short hand, tied to 10 year Treasuries. This is a statistically valid rather causal relationship. This has all sorts of effects across the whole of the economy, so the Fed will sell cautiously. At present, it is signaling about $100 billion per month.

It is also important to project who will buy the Treasuries sold. Why? Because, if they are purchased primarily by foreign governments and investors, it will take dollars out of Forex and strengthen the dollar internationally. This will, in a round about way, lower domestic inflation by effectively reducing the cost of imports. If they are purchased primarily by domestic investors, typically institutional investors, it will lower inflation directly with little or no impact on Forex. The current EUR/USD forecasts suggests that the market is anticipating mostly foreign investors.

Also, to clarify, our Tirana rent is denominated in EUR and our Brest rent is denominated in USD, which complicates our financial situation However, the rest of our purchases are denominated in ALL or BYN and those currencies, through arbitrage, are tightly linked to EUR.

As you see, one of the areas of expertise that we expats need that is not as important for the homebodies is economics, especially with respect to Forex and inflation drivers. It is one of several valuable competencies with international visa rules as another obvious example. However, with competence comes many benefits. We are likely going to experience through 2022 and 2023 a total of about 22% increase in the purchasing power of our pension and retirement income. That is significant. We would get it either way, but clearly, it is better to know than not know. If, in the future, it turns around, there are mitigating strategies.