More Debits & Credits Posts

Planning around Inflation

June 13, 2011

Inflation seems an inevitable fact of life these days, but it is possible to help clients plan their investments to account for the steady increase in prices.

Inflation, in fact, has been around since ancient times, points out Daryl Montgomery in a new e-book, “Inflation Investing: A Guide for the 2010s, Volume 1.” It dates back at least as far as the Roman Empire. The major assets for investing as a hedge against inflation include precious metals such as gold and silver, energy commodities and energy company stocks, agricultural commodities and farmland, and art, antiques and collectibles.

Investing in industrial metals, currencies and short positions in bonds can also help during periods of inflation, the book points out. With spiraling budget deficits, inflation is bound to be with us for a long time. The true budget deficit picture may not even be what the government reported.

“In December 2010, the U.S. Government Accountability Office (GAO) refused to render an audit statement on the federal government’s financial statements because of ‘widespread material internal control weaknesses, significant uncertainties and other limitations.’ All of the U.S. budget deficits in the previous few decades would have been even worse than what was reported if money hadn’t been ‘borrowed’ from Social Security, Medicare and Medicaid trust funds to spend on running the other operations of the federal government,” Montgomery points out.

He notes that there has been a lack of truth in government accounting, and a lack of audits of treasury departments, central banks, and reserve holdings, and says these are “tip-offs that truth is not being told.”

“In all cases, when inflation starts to rise rapidly or becomes chronic, it should be assumed that the official government figures are understating it,” Montgomery wrote.

Currency crises like the kind that occurred in East Asia in 1997 and in Iceland in 2008 can also make the effects of inflation more abrupt. With credit-rating agencies now warning U.S. investors about the credit worthiness of U.S. Treasury bonds unless Congress and the Obama administration can agree soon on an approach to curb the U.S. budget deficit, we may be seeing abrupt inflation and more difficult access to credit in the years ahead.

Comments (1)
For anyone who buys food or fuel, and that is just about everyone, there is no doubt that inflation has been with us for some time.

The CPI the government uses, which excludes these items, but does include things like home mortgage interest rates and car loan interest rates, etc. clearly skews this index.

How frequently does one take on a mortgage or car loan? Certainly not with the frequency of purchasing food or fuel. And if one is a senior, the frequency of taking on a mortgage or car loan is even less frequent.

However, seniors have received no cost of living adjustment in social security in 2 years, while for many, the Medicare contribution has increased markedly.

And now it is clear that social security is being targeted to decrease government spending, and AARP is going along with that. Likely means testing will not be far behind. Kind of brings to mind the parable of the grasshopper and the ant, remember that one, the ant worked long and hard to accumulate savings to tide him over during sure to come hard times while the grasshopper frittered away his time and accumulated nothing. When the hard time came, the grasshopper appealed to the ant for help. An example of redistribution of wealth that I feel sure is going to be visited upon us, probably in the name of "fair share", a specious term if there ever was one.

I cannot say for sure when social security will be means tested, but I feel sure it is a matter of when, not if.

I for one would rather see us stop entering conflicts where we are not wanted and are viewed as an oppressor, and let these people continue what they have been doing since the beginning of time, which is kill each other for perceived differences in religion, tribe, blood libels, etc. and not waste the lives and riches of our country.

That is this man's opinion.

Art A, living in Westchester County, NY
Posted by arta | Thursday, June 23 2011 at 11:59PM ET
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