Inflation – How do we protect ourselves?

[battiwallah]

The Global Financial Crisis has provoked the governments of the US and the UK, and to a lesser extent, Australia and other countries to embark on massive economic stimulus programmes. This increase in the money supply dilutes the value of money already in circulation (our money!) and reduces over time the purchasing power of our savings.

So how do we protect ourselves against this inflation? Cash deposits are safe but we pay tax at our marginal rate on any interest and the value of our savings declines relentlessly. Are shares a better investment and if so, which ones are the least affected? What about shares in gold miners or resources like oil and minerals? One can buy gold metal at the Perth Mint and they will store it for you. But there’s no dividend and its price is volatile. Property seems to hold value over the long term but may turn out to be overpriced if the recession gets any worse, and it is illiquid. What about listed property trusts?

In short - what strategies do we adopt today to insulate ourselves from the affects of the inflation that is bound to descend upon us in the near future?

 

[wonderrman]

Hello, if we do see this it probably will not be for a few years. I just posted some comments on the exact issue on another thread. To save me from having to write it again you can read it over in the thread if you like .... https://www.aussiestockforums.com/forums/showpost.php?p=418529&postcount=372.

cheers. W.

 

[drsmith]

I'm thinking property but first wait for rental yields to adjust to a higher inflation/higher interest rate environment.

 

[doctorj]

What if you're wrong? There's an argument on the margin that if you reassess what money supply is, the supply of it has actually gone down.

US “Aggregate” Money Supply - Issuance of Unconventional Money
(Billion $USD)

 

[wonderrman]

What if you're wrong? There's an argument on the margin that if you reassess what money supply is, the supply of it has actually gone down.

US “Aggregate” Money Supply - Issuance of Unconventional Money
(Billion $USD)

I must ask, is this on a full year basis? Doesn't this table show that in four months of '09 they have injected nearly more then they did for the entire preceeding 12 months.

If it is a four month period, I would suggest that there still is alot more printing to come! This deleveraging process has just begun.

Either way, you cannot expect us to come out of this hussle free. This debt in the economy has to clear, and it will take a few years. Either through depression and lots of bankruptcies. Or inflation and currency debasement. You cannot expect government intervention which caused this problem to fix the problem. wonder.

 

[doctorj]

All I'm suggesting is that when everyone's looking one way, there's a danger that the bigger picture is missed. It was certainly the case at the top end of the market and it appears the majority expects inflation to leave a trail of destruction in the not-too-distant future.

I don't know the answer, but points such as this, reductions in money velocity and large amounts of excess capacity seem to deserve more attention than they're getting when it comes to assessing future inflation.

On top of all that, lets not forget a little inflation is generally considered quite healthy (for the majority of the world anyway...).

 

[sinner]

What if you're wrong? There's an argument on the margin that if you reassess what money supply is, the supply of it has actually gone down.

US “Aggregate” Money Supply - Issuance of Unconventional Money
(Billion $USD)

Hi doc,

Your table shows that in the three and a bit months to 2009 "we" have already issued 83% of the average of the 3 prior years (10,130). This average will probably be surpassed before the end of the current financial quarter at the current rate.

It is unarguable that money velocity deccelerated rapidly last year, but we have certainly made up for it in 2009!

 

[doctorj]

This wasn't my research (see the website mentioned in the graphic), but I suspect this isn't new issuance, but current - think balance sheet rather than p&l

 

[wonderrman]

All I'm suggesting is that when everyone's looking one way, there's a danger that the bigger picture is missed. It was certainly the case at the top end of the market and it appears the majority expects inflation to leave a trail of destruction in the not-too-distant future.

I don't know the answer, but points such as this, reductions in money velocity and large amounts of excess capacity seem to deserve more attention than they're getting when it comes to assessing future inflation.

Hello, I don't know if you have read many of my posts but what I am suggesting is one of two things could happen economically to fix this mess. You are either going to get depression so the debt is cleared through bankruptcies or hyperinflaton because centeral bankers will be money printers and print there way out of the problem. Both have huge ramifications. Either way, this debt has to clear out of the system so a new period of growth can occur.

Obviously option 1, depression is more better as it occurs quicker but is very painful. Option 2, inflation takes longer to pan out because governments intervene when they should not.

A 20 year period of overleveraging cannot just dissapear down the toilet, it has to be fixed and corrected and this will be painful. We have all ready experienced a lot of pain on the stockmarket, but we must remember that the stockmarket is not the economy. We really haven't felt a lot of pain in the economy just yet. Wonder.

 

[Ageo]

deflation, followed by massive inflation and possibly hyperinflation?

I think the governments are too smart for that thow, new currencies to wipe out existing debt???? maybe thats more of a possibility.

In the end hard commodities are really the only thing that protects you against corrupt governments as those things are essential to survival.

 

[battiwallah]

For a graphic demonstration of what's happening now with the American money supply have a look at this:

http://www.youtube.com/watch?v=R2Npvl3fUks&feature=related

The coming increase in the quantity of US dollars takes your breath away. Hang on! It's going to be a bumpy ride.

 

[wonderrman]

Sorry I missed your post earlier today. I don't have much time to expand because I am going away tomorrow, sorry for the short post.

In the end hard commodities are really the only thing that protects you against corrupt governments as those things are essential to survival.

I agree with you regarding commodities. If paper money is inflated due to money printing then yes commodities will obviously do very well. Especially gold, people forget that gold remains the historc hedge against the destablisation of goverment.

deflation, followed by massive inflation and possibly hyperinflation?

Not suggesting both massive deflation and hyperinflation will occur. Usually only one happens largely and one not so greatly. E.g. if we went into massive deflation and depression you would most likely not get hyperinflation because governments wouldn't have printed **** loads of money and intervened which is the reason for the depression. If you had hyperinflation it would be because governments have intervened to stop the massive deflation and depression so you would not get that. I didn't write that very well hope you understand it.

I think the governments are too smart for that thow, new currencies to wipe out existing debt???? maybe thats more of a possibility.

I disagree regarding smartness of governments. They're all buffoons and this past months have proven that they have not learnt anything from the past. Their intervention caused this problem and people think that them intervening will fix it. How stupid can people be? Adam Smith's thinking regarding the invisible hand of the market is true, they like everyone else only act in their own self-interets, not for justice or the people they serve. You cannot expect them to save us when they are the crooks. Geithner has said that he wants to identify and get rid of all the bad apples in the system, I agree with Faber, he should buy a mirror and stand in front of it with Helicopter Ben and that idiot Summers. They're the bad apples.

new currencies to wipe out existing debt????

This is an interesting thought and I read somewhere that the Chings are wanting to do something like this with the IMF. I will have to do some reading on it when I get back next week.

Wonder.

 

[>Apocalypto<]

The Global Financial Crisis has provoked the governments of the US and the UK, and to a lesser extent, Australia and other countries to embark on massive economic stimulus programmes. This increase in the money supply dilutes the value of money already in circulation (our money!) and reduces over time the purchasing power of our savings.

So how do we protect ourselves against this inflation? Cash deposits are safe but we pay tax at our marginal rate on any interest and the value of our savings declines relentlessly. Are shares a better investment and if so, which ones are the least affected? What about shares in gold miners or resources like oil and minerals? One can buy gold metal at the Perth Mint and they will store it for you. But there’s no dividend and its price is volatile. Property seems to hold value over the long term but may turn out to be overpriced if the recession gets any worse, and it is illiquid. What about listed property trusts?

In short - what strategies do we adopt today to insulate ourselves from the affects of the inflation that is bound to descend upon us in the near future?

HIDE UNDER YOUR BED........:hide:

THAT'S IF YOU STILL HAVE ONE!

 

[Ageo]

I disagree regarding smartness of governments. They're all buffoons and this past months have proven that they have not learnt anything from the past. Their intervention caused this problem and people think that them intervening will fix it. How stupid can people be? Adam Smith's thinking regarding the invisible hand of the market is true, they like everyone else only act in their own self-interets, not for justice or the people they serve. You cannot expect them to save us when they are the crooks. Geithner has said that he wants to identify and get rid of all the bad apples in the system, I agree with Faber, he should buy a mirror and stand in front of it with Helicopter Ben and that idiot Summers. They're the bad apples.

When i say the governments are too smart i mean not by handling things the right way i mean i reckon they know (and whoever's behind them) know how to make things go there way, you see by most world powers following suite then the majority of the population thinks thats the right thing to do so in turn they can push for whatever their future agenda is (even if its the most evil thing on earth) oh and Obama is the best man for that job just quietly

This is an interesting thought and I read somewhere that the Chings are wanting to do something like this with the IMF. I will have to do some reading on it when I get back next week.

Wonder.

The IMF is now starting its own currency which is a big worry hence its owned by private bankers and who supports this? well the G20 and if the G20 says its ok (especially obama) then the majority of the world says its ok. Thats what im getting at, they are fkn up the system but they are moving into the next phase and have the whole world behind them.

Perhaps the most brilliant form of con the world has ever seen.

 

[Wysiwyg]

Found this while rummaging through buried IRIS paper work.Damn fine report it was too.

The Hudson Report 1995, issue 17

 

[moXJO]

Long wall of text but some important issues regarding inflation-deflation.

http://www.financialarmageddon.com/2009/04/more-reasons-to-worry.html

More Reasons to Worry About Inflation
Many deflationistas believe that the wealth being destroyed by the bursting of the global credit bubble will swamp the money being created by fiscal and monetary authorities for the foreseeable future, thus eliminating the threat of inflation, at least in the near term.

But what they seem to be discounting is the effect that a contagious loss of confidence can have on the value of a fiat currency, which is, after all, dependent on the continued faith of those who accept it as a medium of exchange and a store of value.

If, for example, enough people start to believe that a government is embarking on road-to-ruin economic policies, hordes of those who hold the currency may suddenly start stampeding for the exits, altering the supply-and-demand equation and leading to a contraction in its purchasing power.

Deflationistas also give short shrift to the notion that in a world where economies are connected to each other through currency markets and other mechanisms, deflationary pressures can easily be exported from one location to another, whether through intentional policy maneuvers or not.

In "Swiss Slide into Deflation Signals the Next Chapter of this Global Crisis," The Telegraph's Ambrose Evans-Pritchard suggests that such a strategy could find a popular and growing appeal, sparking a contagious dash towards currency debasement that leaves some countries holding the inflationary bag.

Watch Switzerland closely. It is tipping into deflation, the first Western country to succumb to Japan's disease.

Swiss consumer prices fell 0.4pc in March (year-on-year). Swiss CPI will be minus 1pc at least by July, nearing the level where spending psychology changes. By the time you have a self-feeding spiral, it is too late.

"This is something that we must prevent at all costs. The current situation is extraordinarily serious," said Philipp Hildebrand, a governor of the Swiss National Bank.

The SNB is not easily spooked. It is the world's benchmark bank, the keeper of the monetary flame. Yet even the SNB's hard men have thrown away the rule book, taking emergency action to force down the exchange rate of the Swiss franc.

Here lies the danger. If other countries try to export deflation by this means, we will face a second phase of the global crisis. Taiwan is already devaluing. Korea, Singapore, and Sweden all seem tempted to follow. Japan is chomping at the bit.

 

[moneymajix]

Author who predicted crisis sees inflation ahead

Wed Apr 8, 2009 5:56pm
By Daniel Trotta


NEW YORK (Reuters) - An author who saw the global financial crisis coming fears the next bubble will come in the form of inflation and has little confidence U.S. President Barack Obama's team is up to the challenge ahead.

"The Democrats have replaced the Republicans as the big benefactors to the financial community," said Kevin Phillips, author of "Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism."

"The financial community is donating more to Democrats than ever before and you've got more Democrats in the financial community, creating a very powerful pattern there. I don't think you're going to see the Obama administration and Congress willing to be tough enough in dealing with these things," he told Reuters.

Phillips, a former strategist in the Nixon White House who has turned highly critical of the Republicans and voted for Obama in 2008, published "Bad Money," his 13th book, a year ago.

The paperback edition came out March 31 with a revised preface and afterward, interpreting the events of the past year, but the prescient body of "Bad Money" remains unchanged.

A year ago, he warned of a the pending explosion of a 25-year "multibubble" that started in the 1980s, when the financial sector accounted for 10 percent to 12 percent of the U.S. economy had started metastasizing into an "arguably crippling" 20 percent to 21 percent by the middle of this decade.

Overleveraging and easy credit was bound to create disaster, he warned.

Phillips assigns much of the blame to former U.S. Treasury Secretary Henry Paulson, but perhaps even more on Federal Reserve Chairman Ben Bernanke, who he calls a "disaster," and his predecessor, Alan Greenspan.

Phillips calls Paulson a Wall Street insider who was looking out for his own, and Bernanke an academic misguidedly trying to refight the 1930s Great Depression. Together they formed the wrong team at the wrong time whose ad hoc approach threw away hundreds of billions of dollars and more than doubled the Fed's balance sheet, he says.

"What you're seeing Bernanke do is he's trying to create a bailout reflationary bubble, which he can't describe as a bubble, just as Greenspan couldn't describe the housing mortgage bubble as a bubble. What we're seeing by Bernanke is a covert attempt to rebubble," Phillips told Reuters.

Moreover, a commodities cycle probably started early in this decade and is only being masked now by recession, Phillips says, presaging a repeat 1970s style inflation, he said.

"The danger is that the great unwind -- the unraveling of the mammoth buildup of debt -- is under way. If that predominates, Bernanke's theory is you're going to have deflation," Phillips said.

"My theory is that if we are in a commodities cycle, what you will get will be more like 1973-74-75 ... where as soon as the recovery begins you get rising inflation because you're going to play havoc with all money supply and liquidity that's been unleashed " he added.

Meanwhile, the taxpayer and small investor have little defense.

"The average person is going to be on the periphery of concern and I think that's rotten," Phillips said.


http://www.reuters.com/article/newsOne/idUSTRE53790N20090408


:

 

[MrBurns]

Author who predicted crisis sees inflation ahead

Wed Apr 8, 2009 5:56pm
By Daniel Trotta


NEW YORK (Reuters) - An author who saw the global financial crisis coming fears the next bubble will come in the form of inflation and has little confidence U.S. President Barack Obama's team is up to the challenge ahead.

"The Democrats have replaced the Republicans as the big benefactors to the financial community," said Kevin Phillips, author of "Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism."

"The financial community is donating more to Democrats than ever before and you've got more Democrats in the financial community, creating a very powerful pattern there. I don't think you're going to see the Obama administration and Congress willing to be tough enough in dealing with these things," he told Reuters.

Phillips, a former strategist in the Nixon White House who has turned highly critical of the Republicans and voted for Obama in 2008, published "Bad Money," his 13th book, a year ago.

The paperback edition came out March 31 with a revised preface and afterward, interpreting the events of the past year, but the prescient body of "Bad Money" remains unchanged.

A year ago, he warned of a the pending explosion of a 25-year "multibubble" that started in the 1980s, when the financial sector accounted for 10 percent to 12 percent of the U.S. economy had started metastasizing into an "arguably crippling" 20 percent to 21 percent by the middle of this decade.

Overleveraging and easy credit was bound to create disaster, he warned.

Phillips assigns much of the blame to former U.S. Treasury Secretary Henry Paulson, but perhaps even more on Federal Reserve Chairman Ben Bernanke, who he calls a "disaster," and his predecessor, Alan Greenspan.

Phillips calls Paulson a Wall Street insider who was looking out for his own, and Bernanke an academic misguidedly trying to refight the 1930s Great Depression. Together they formed the wrong team at the wrong time whose ad hoc approach threw away hundreds of billions of dollars and more than doubled the Fed's balance sheet, he says.

"What you're seeing Bernanke do is he's trying to create a bailout reflationary bubble, which he can't describe as a bubble, just as Greenspan couldn't describe the housing mortgage bubble as a bubble. What we're seeing by Bernanke is a covert attempt to rebubble," Phillips told Reuters.

Moreover, a commodities cycle probably started early in this decade and is only being masked now by recession, Phillips says, presaging a repeat 1970s style inflation, he said.

"The danger is that the great unwind -- the unraveling of the mammoth buildup of debt -- is under way. If that predominates, Bernanke's theory is you're going to have deflation," Phillips said.

"My theory is that if we are in a commodities cycle, what you will get will be more like 1973-74-75 ... where as soon as the recovery begins you get rising inflation because you're going to play havoc with all money supply and liquidity that's been unleashed " he added.

Meanwhile, the taxpayer and small investor have little defense.

"The average person is going to be on the periphery of concern and I think that's rotten," Phillips said.


http://www.reuters.com/article/newsOne/idUSTRE53790N20090408


:

Interesting so if you have cash in the bank what do you do with it to protect yourself ?

 

[moXJO]

Interesting so if you have cash in the bank what do you do with it to protect yourself ?

Investment property with fixed interest loans? Hard assets?
The problem is if we do get deflation, then those things are the exact opposite of what you want.

 

[MrBurns]

There's only property really, I think inflation is on the cards because of all the Govt spending and printing of money.