Since September 17, 2019, the Federal Reserve has been printing hundreds of millions of dollars like never before, in what I believe to be a covert attempt to rescue the failing Deutsche Bank from the brink. The federal government deficit, and debt, have never been higher. And now we are facing the possibility of a serious war in the middle east!
Any ONE of these is enough to cause a serious spike in inflation. Now imagine all three hitting at once!
WHAT IS INFLATION?
Most people think of inflation as “rising prices”, or prices that are “inflating”. Rising prices is really only the effect of inflation. The word actually refers to the quantity of currency circulating, and when central bankers “inflate” that quantity, a rise in prices is the eventual result.
What this means to you and I is that everything we buy, including homes, cars, milk, vacations, clothes, toys, healthcare, and anything else you need all see price increases…..rapid price increases. And usually more rapid than your paycheck goes up, even when accounting for your 2% pittance of a pay raise! So that $50,000 car this year will be say $55,000 next year!
In the late 1970s, inflation peaked at about 15% annually. So for a few years, prices increased by 15%, but paychecks were stuck increasing at 2 or 3%.
INFLATION ALREADY RAMPANT:
Believe it or not, inflation is ALREADY rampant due to the quantitative easing (aka “money printing”) done by the Federal Reserve over the past decade. But, that inflation has only reared its ugly head in asset prices, instead of in the broader economy.
Has anyone noticed the increase in housing prices and rent? Has anyone noticed the tent cities forming in major west coast cities like San Francisco, Portland, Seattle, and Los Angeles? These are forming because the cost of housing is going up much faster than the wages. It IS inflation.
Has anyone noticed the inflation in stock prices, as the stock markets continue to hit new highs even though stocks already trade at nosebleed levels?
Has anyone noticed the price of gold hitting new recent highs?
It’s only a matter of time before prices of everyday goods start seeing similar increases. When milk, daycare, & gasoline start to outpace your paycheck’s ability to pay for these things, then you will know what inflation is about.
Inflation IS wealth destruction for those living on fixed incomes, including those who have jobs, live on a pension, or live on social security.
PROTECT YOURSELF FROM INFLATION
Inflation is nothing less than the destruction of the currency (i.e. the dollar), via an increase in its supply. As the dollar supply increases, its value decreases. As its value decreases, it takes more of those same dollars to buy the same stuff.
To protect yourself from inflation, you simply need to transfer any wealth you have to something OTHER THAN dollars, the currency being destroyed.
The easiest way to do this is to buy precious metals such as gold & silver. There are several online bullion dealers such as APMEX or SD Bullion who supply gold or silver bullion American Eagle coins in exchange for your devaluing dollars.
Real estate is another way to protect yourself. But…..real estate is already very inflated in price relative to rents that can be collected. Be careful of what and where you buy.
Credit accounts (i.e. credit cards) that have variable interest rates can expect to see those rates increase as general price inflation increases. Best to look at converting variable interest rates to fixed interest rates. Paying back loans at a fixed rate with dollars that are worth less over time, that is like getting something for nothing. Inflation rewards those who have low fixed interest rate debt, while still being able to service the debt.
Because of the quantity of currency printing, and the excessive debt built up throughout the economy, I am not just expecting a little inflation. I am expecting to see an INFLATIONARY ECONOMIC DEPRESSION soon in the United States. Something akin to what keeps happening in Argentina, but probably not as bad as Venezuela.
As prices continually increase, the average citizen will be forced to stop spending on basic items……similar to what is happening with housing on the west coast.
When the average citizen can no longer afford the basics of life, such as food, gas, clothing, or housing, they stop buying, and economic activity is imperiled….all while prices continue to rise due to a collapsing dollar. This is why the stock market does poorly when inflation finally takes hold.
Inflation results in a subtle, persistent wealth transfer , moving wealth from those who earn a living or pension, to those who own assets. It is theft on the grandest of scales, which allows those who indebted themselves to pay back loans with dollars that are worthless. And I believe this will happen because governments are the biggest debtors of all, and will do what they can to ensure it happens so they too can get something for nothing!