What are fellow ETer's doing to beat the coming inflation risk? -I am buying property at these low rates to allow inflation to pay it off -I am putting some idle cash in Australian Dollars and seeking other currencies to denominate in Others?
All the money is sitting on balance sheets, possibly with mark to market getting booted banks might losen up on lending standards. Inflation will come once able & willing borrowing is restored.
Buying real estate is a poor hedge against the upcoming inflation. Yes real assets such as commodities and real estate will increase in value. However in real terms they will are not likely to have a positive return rate. This is because of three main reasons. 1. Real estate prices have yet to bottom. During great depression home prices fell as much as 90%. The housing bubble still shows all the signs of continued decline. When forclosure rates slow, then so will home price and real estate price declines. 2. We are going to have high inflation rates. Most likely this is be one of the worst times for inflation to occur. Not only will this result in increased unemployment.....then forclosure, but also increase businesses closing. Therefore commercial real estate will continue to further decline. 3. Very few people can afford a home with 15% interest. Therefore most of the sales of land will have to occur in the form of cash with very little borrowed money. Your land keep up with inflation, but when no one has the money to buy it or can afford to take a mortgage to buy it, then its value must be lowered. Some real estate is not a bad idea. However, gold and silver will perform much better and be much more liquid. Other currencies have their issues as well and therefore I would not consider them an ideal hedge.
And what are you going to do with your inflation investments if the incompetent clowns currently in charge fail to reinflate the bubble and we have deflation?
Why exactly are you expecting inflation? Where was all the inflation from the massive deficits, spending, and printing that Japan went through in the 90s?
The only way that our government leaders know how to solve a problem is to throw money at it. The only way they can spend more money when we are already bankrupt is to keep printing more dollar bills. After giving all of this newly printed money to banks, unemployed Americans, the auto companies, etc., the money supply will expand to the point that inflation is inevitable. Our government is committed to printing enough money to inflate us out of this mess. Unfortunately, it is doomed to fail, which provides incredible profit opportunities for savvy investors who invest in real assets and misery for many Americans.
Still shaking my head how so many say and think "high inflation is surely coming, make no mistake about it"? When? How? What chips have to fall into place for inflation to run high, given the current environment? - record corporate and private household debt (compare to the 70s: http://www.comstockfunds.com/files/NLPP00000\177.pdf) - contracting global credit - record excess production capacities, globally - high unemployment, minimal wage rises - tame unit labor costs increases ( http://img7.imageshack.us/img7/6943/prs85006112284581239438.gif ) Nobody seems to have to even argue their point, hyper inflation "down the road" seems to be a well accepted fact or foregone conclusion. Ironically, it almost feels many are pounding their chest on how "contrarian" they are betting on high inflation. It appears to me it is becoming a rather crowded view; so many think its so obvious and logical, how it's a "surefire bet". Paint a picture how the above metrics will make a 180, because you will need them to change for inflation to "rear its ugly head" as the inflation bulls love to say. The only picture I can imagine that given the above background is an overnight return to the debt-driven, over-consumption, over-building, leverage-mania world we had pre 2007. I'd say we can safely say that's a low probability outcome, over the intermediate-term. Rather, will this debt-shock create a generation humbled to frugality and thrift as David Rosenberg argues? Will global asset values continue to deteriorate/churn sideways over the next 10-20 years as consumers and investors doctor their balance sheets, pay off debt, shun risk/grow bets and prefer yield and safety? That type of world would be a balance sheet compression, low-inflation type of world where government spending fails to substitute a lack of private and corporate spending. There are two periods that had a corporate/private household debt bubble and subsequent bust followed by a government takeover of spending and entire sectors of the economy, leaving a generation of consumers in shock and awe for decades. 1930s USA and 1990s Japan. Neither resulted in high inflation.
Makloda, i think you're right. At this moment, nothing points to serious inflation - let alone hyperinflation. There are basically two types of people hoping for high inflation rates: 1) Those who are in debt 2) Those who think they can profit from high inflation, for example real estate owners, gold bugs and so on 99% of all people fit into one of these two groups. This explains why the theory of 'getting high inflation' is so popular. It's the only scenario under which they can come out as winners, or at least, without serious damage. On the other hand, serious deflation could be devastating for many people. The 'high inflation' scenario is based on HOPE, not on facts and reality.
A very thoughtful post Makloda. However, you don't address the issue of "printing money" which I do believe will be attempted on a big scale. Surely this has to produce inflation? Appreciate your thoughts.