Despite a market that is telling us that deflation is the cure for our economic ills – deleveraging, writing down debt, bankruptcies – our leaders are doing whatever they can do prevent it even if it means destroying our currency. While the near term continues to look like deflationary forces are dominant, we can increasingly look to a time when inflation looks to be certain.
The Federal Reserve is committed to quantitative easing. Quantitative easing (QE) is essentially the creation of money out of thin air to buy assets or government debt. It is often called “printing money” and is purely inflationary. In an effort to buy debt, keep rates low and fund the government programs, the Fed creates money and funnels it into the Treasury and other financial institutions. Rather than banks going under or the government balancing its budget, the leaders choose the inflationary practices of quantitative easing via the Federal Reserve. This policy will continue as the economy fails to rebound and will ultimately have the potential to destroy the US Dollar.
As we continue to believe we’re in an economic depression, the Federal Reserve will fail to “fix” the economy and as a result will attempt even more printing, and it will result in an inflationary death spiral where our currency becomes worthless. Even if the deflation outweighs the actual inflation, the loss of confidence that this policy will create will still create an atmosphere where money floods into instruments like gold as a safe haven.
You must protect your assets from this future situation.
A few things you need to do in order to protect your assets:
- Own and invest in inflation-hedged instruments
- Invest in real assets and diversify out of paper assets
- Have assets outside the financial system
Inflation-Hedged Assets
To protect yourself against inflation, some assets are much better than others. First and foremost gold and precious metals are essentially the de facto investment for future inflation. As fiat currencies struggle and go down, people will increasingly exchange their fiat currency for gold and other precious metals. Gold is money and has never been worth zero. You can’t print more of it. Gold (and other metals) need to be a part of your overall investment picture.
Also, stocks are actually decent inflation-hedged assets since stocks are essentially businesses. Businesses can pass on higher costs to consumers therefore, in theory, they can stay profitable in an inflationary time. With that said, the economic environment is also deteriorating in terms of economic activity so stocks will have their problems. Even so, you should own some stocks, preferably stocks that earn revenues outside the United States and pay dividends.
Invest In Real Assets
You need to think about investing in real assets versus paper assets. Cash, stocks, etc. are all paper assets. What are real assets? Well, we already discussed gold and precious metals, but other real assets include guns, ammunition, liquor, consumer staples like toiletries, shoes, clothes, things you need and will always need. By buying things now, you will save money since inflation will raise prices. Also, gains you make by purchasing consumer goods aren’t taxed!
Have Assets Outside The Financial System
The financial system is in terrible shape and in many respects is very corrupt. Frankly, I don’t trust it. You should diversify out of the financial system where possible. Diversification is all about spreading risk out – well, if the financial system itself is a risk, don’t you think you should diversify accordingly? Consider keeping some cold hard cash on your property (well hidden and secure). Keep gold coins on your property or somewhere safe and hidden.
Take These Actions Versus Paying Off Your Mortgage
While paying off your mortgage is a great thing, if inflation strikes, you will have wished that you allocated that money towards inflation-hedged assets rather than paying off debt. Your debts will get inflated away during massive inflation, so paying down your mortgage now might not be the best strategy. If you’re determined to pay off your mortgage, consider finding a good balance of all of the above steps. Good luck.