Get Ready For Inflation

What is known is that inflation is inevitable. What is not known is its timing, duration and intensity. The apocalyptic scenario is chilling. The Bernanke/Obama scenario is akin to a dental check up. Somewhere in between lies the truth. You would have to be older than I am to have experienced inflation that last time it was in full bloom in the United States. Those that were prepared lived through it with little pain, and a few of the strategy minded came out ahead. What we have never lived through is hyperinflation. I include two videos from someone who has lived through it and who has dire predictions for the future. I start with an inflation tutorial, go on to discuss the current situation and how we got where we are. I then present and review multiple predictions and move on to strategies.

Inflation 101

Inflation is the result of having too much money in the economy compared to the supply of goods and services.

The government has several ways to pull money out of the economy to avoid inflation. Bernanke is banking (he he) on several possibilities.

James Grant (no relation) opines that the government is taking “kitchen sink” measures to stimulate, but greater inflation may be the result of the spending orgy.

Now for the chilling side of things. Some are predicting meltdown. What they mean by that is hyperinflation. Hyperinflation has been seen on a limited scale in the past, but is predicted by the following two videos to be a global phenomena in the near future. These next two videos are lessons from Argentina.

This video also predicts doom and gloom…

What you can do to get ready if Bernanke is right…

Inflation helps borrowers and hurts lenders (but in a bailout era, lenders are protected at the expense of producers, ie. you and me and our posterity for a couple of generations). Because the government is a big borrower, inflation is only bad for it if people get upset and informed enough to change the regime. Basically, the government is able to pay off its fixed interest rate debt responsibilities with inflated dollars.  In the Bernanke scenario, inflation will rise (but not too high), taxes will go up, and the government will have an easier time paying off debt. If he is right, you should:

• Hold NO credit card debt (CC debt is adjustable debt. If you carry a balance on your CC debt, you will be toast later)




• Get out of any adjustable rate mortgage  (ARM) that you may have (If you are in an adjustable rate mortgage, get out of it fast)
• Have food storage (1 year)




• Plant a garden
• If you have money or assets, buy TIPS (Treasury Inflation Protected Securities)
• Own paper gold
• Consider Commodities
• Short the Dollar

The previous four suggestions are paper based. That is, you don’t have to hold gold bullion, pork bellies or buy another currency. You can accomplish all of these through paper transactions through a broker. There is security risk with actually owning and holding bullion which can be avoided with a paper purchase.

What you need to do to get ready if the worst-case scenarios are right…

The worst case scenario is brutal and unpredictable. Here are some ideas:

• Move out of large cities where demonstrations, riots and theft are more likely than in rural areas
• Take advantage of second amendment rights while you can
• Increase your food storage (one year minimum)
• Hold no adjustable debt
• Plant a garden
• Increase home security
• Own property in Brazil
  

Mormon leaders have been teaching members of the church to prepare for inflation and other events since about 1950. Recently, the warnings and counsel have become more urgent.  The advice is great for all scenarios. If you are not a Mormon, find one and ask about what has been taught for decades.  Here are some examples:

Joseph B. Wirthlin

James E. Faust

Gordon B. Hinckley

Ezra Taft Benson

From a political standpoint, government response from the current executive and legislative branches will likely make things worse for a time. It will get worse because of the character of the politicians involved.  They care much more about re-election and self-aggrandizement than they do about reversing the current destructive course of special-interest constituent subsidization, Governor Christie being the salient counter instance.  Making changes every November for a while would be a good idea.

From Coolidge:

“It is difficult for men in high office to avoid the malady of self-delusion. They are always surrounded by worshipers. They are constantly, and for the most part sincerely, assured of their greatness. They live in an artificial atmosphere of adulation and exultation which sooner or later impairs their judgment. They are in grave danger of becoming careless and arrogant.”

Conclusion

In preparation for this post, I spoke with several wall streeters and economists and found no predictive consensus. I really don’t know what will happen. I can say, in the words of Mr. T, “My prediction, PAIN.” It’s time to prepare for the worst and hope for the best.