inflation

The REAL Hedge Against Inflation

A good financial adviser will not ignore the fact that inflation is an unavoidable fact of the modern American economy and, as such, it behooves the investor to arrange his portfolio to reduce the severity of the backhand across the face it can deliver when you tally up the credits and debits at the end of the year. Consider this. The government admits to an annual inflation rate of about four percent though, since the official calculation excludes food and energy costs, the number might as well have been sent in by as a candy-gram from a lobotomized clown, a term which, strangely, makes us think of Ben Bernanke.

Floating Away the National Debt

One of the things that people frequently puzzle over is how the US can ever satisfy its massive national debt. The figures frequently seem so large that they are beyond the comprehension of most people. Most analysts predict tax increases or spending decreases as a way to offset accumulated deficits in the future. Analysis of the facts shows a very different story that is likely to play out again in the future.

Paying the Man

The current financial situation in the United States is on the precipice of major interest rate increases that will be precipitated by one of two events. The basis for both scenarios is the profligate monetary expansion undertaken by the Federal Reserve over the last year to address a perceived risk of deflation and purchasing bonds from the Treasury to artificially hold down interest rates. This current trend of monetary expansion cannot be sustained indefinitely without consequence.

Money Mischief

By now, most people have heard about the second round of “Quantitative Easing” being conducted by the Federal Reserve. In short, this means that the Fed will be purchasing treasury bills with freshly printed money to inject more cash into the monetary system. To date, most of this additional liquidity has been limited to banks who have opted to hold the capital instead of loan it out. The reason for this is because the banks can borrow from the Fed at extremely low overnight interest rates and use the capital to purchase treasuries with a yield rate that exceeds their cost of borrowing.

A Dollar is NOT a Dollar

One of the most important concepts for investors to understand is that a dollar today is not the same as a dollar yesterday, and is not the same as a dollar tomorrow. Over time, inflation erodes the purchasing power of currency. This is critically important, because most people focus on the nominal change in the value of their investments, but unintentionally ignore their real value after accounting for past and expected future inflation.

Remember, A Dollar Is Not Always A Dollar

In case you missed the recent “Predictions for 2011 and Beyond” conference call hosted by Jason Hartman and Empowered Investor Network, one of the primary topics covered was the fatal flaw made by many investors who assume a dollar is always a dollar. This basic economic fallacy can kill your portfolio, and leave you with much less money in your retirement years than you had hoped.

* By the way, you can buy the ebook containing all the information from the conference call at THIS LINK. The $197 price includes a private 30 minute consultation with Jason Hartman.

But back to the dollar. The critical concept to understand is that a dollar today is not worth the same as a dollar one year from today, or even ten years from today. The real value of a dollar, expressed in terms of what you can actually buy with it, continually erodes over time. The reason for this is, of course, inflation, which has been a constant factor in our economy in a major way since President Nixon took the country off the gold standard in the early 1970’s, and granted the Federal Reserve de facto permission to create money out of thin air.

Inflated Egos: Why the News Media is Dead Wrong About Inflation and the Economy

Recent news cycles have been peppered with reports of looming inflation from economists and business leaders, along with the expected denials and excuses from politicians and their propaganda outlets in the news media. Chief among the distortions being advanced is the notion that inflation cannot persist in a down economy.