Here’s why it can be a good idea to prepare.
With all of the reckless government spending, many are becoming concerned about the potential devastating effects of inflation. Significant inflation is not only feasible, it is very likely. I wanted to take a few moments to update you on what is going on in the economy, how inflation can be dangerous, and provide several investment ideas that will help us fight inflation in the upcoming days.
Why is inflation inevitable?
With Democrats and Republicans alike agreeing deficits are necessary to fight our current economic crisis, Obama and his party have no constraints on how much they are willing to spend! “Sky’s the limit! Heck, they have already committed to spend over trillion-plus dollars over the next two years alone.
So how will we pay for it?
We really only have two ways to pay for the spending:
(1) Printing more money, which causes inflation, and/or
(2) Hiking taxes, which kills investment, businesses and jobs.
Why is inflation dangerous?
Inflation simply means rising prices. But in addition to retail price inflation measured by the Consumer Price Index, you also have monetary inflation – the growth of the money supply, or the total amount of money in the economy. (Our money supply includes dollars, checking and savings accounts, CDs and money market funds, and short-term transfers of securities in exchange for cash.)
Here is the great balancing act of the Federal Reserve. If it eases the money supply (think lower interest rates), borrowing costs decrease, and investment generally increases. But with easy money, price inflation and currency devaluation follow. The Fed can fight inflation by raising rates to effectively tighten the money supply, but with possible byproducts of reduced consumer spending, lower corporate earnings, and less investment.
Is the government helping or harming the economy?
My opinion is the government is doing much more harm than good with its current spending. We must realize that government intervention is magnifying, not solving the problems that caused the crisis! It’s only when the patience of the public with Obama’s remedies run out that we can get the train back on the tracks. However, this probably won’t happen until at least mid-term election time (late 2010), maybe re-election time (2012) or even thereafter.
What do you do in the meantime?
There are many ways to protect you and your family from the potentially dangerous effects of inflation. Hard times for America do not necessarily mean hard times have to come for you. No matter what the economy is doing, no matter what the state of financial markets are there is always a strategy available that can make you money. The key is to recognize opportunities wherever they may be and, more importantly, detach from old investment strategies that are no longer working.
Here is a list of inflation protection securities. Please note these are a list of suggestions. These are not recommendations. Please do your own research before purchasing. Here are six ETFs with the potential to do well if inflation takes off:
IShares USTIP Securities (TIP)
IShares COMEX Gold (IAU)
IShares Silver (SLV)
Proshare Ultrashort 20+ Year Treasury (TBT)
Proshares Ultrashort 7-10 yr Treasury (PST)
SPDR Gold (GLD)
Let’s be realistic: the next several years may be the toughest ones for Americans in their lifetime. However, they do not need to be tough years for you if you prepare, trust in God, and find and follow sound investment advice.