Inflation is Coming

Inflation is coming. Serious inflation like we have not seen since the days of Jimmy Carter.

The United States Treasury is borrowing money from overseas and the Federal Reserve Bank is creating money out of thin air; Lots of money; Mind-numbing quantities of money.

The sum total of all goods and services produced in the United States has fallen every quarter since the end of 2007 and it continues to fall.

The prices of oil, gold, and copper are slowly rising from their recent lows. Yields on long term Treasury Bills are rising as well, moving from less than one percent to over three percent in six months.

Whether fiscal stimulus will increase or retard economic growth is unclear. What is clear is that a lot more money will be available to spend or a lot fewer goods and services. This is practically the definition of inflation. I don’t know when it will start – perhaps it already has. When inflation gets started dollars will become worth less.

Inflation may be the only way out of the excessive personal debt load carried by millions of Americans. It will reduce the value of debts and tend to increase wages making the debts more affordable. That’s the good news.

It will also make most things cost more. Adjustable Rate Mortgages (ARM) will reset upward as inflation inevitably raises mortgage interest rates. It will make doing business more complicated. Some businesses will fail because of their inability to raise prices as fast as their costs increase. It will erode the value of savings and annuities and give the United States government a way to reduce Social Security and Medicare benefits on the sly by increasing benefit levels more slowly than the real rate of inflation.

Inflation is coming. Get ready.

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