How to Protect Yourself From Inflation

I’m sure you’ve seen all the talk of quantitative easing after the FOMC announced they’d be buying $600,000,000,000 (isn’t that just an absurdly large number?) worth of assets. You’ve also probably seen a lot of pundits warn that this, along with already low interest rates, puts us in a position of dealing with high levels of inflation in the future. When you increase the money supply, the existing money becomes less valuable.

So how does one protect ourselves from inflation, should it rear its ugly head?

Try to fix as many expenses as possible. One of the great ways to combat inflation is to buy a home because you fix your monthly housing payment. When you sign up for a mortgage, you are agreeing to a fixed monthly payment for fifteen or thirty years (assuming, of course, it’s a fixed mortgage). If that’s fixed at $1,500 a month, then it’s $1,500 in twenty nine years. If inflation skyrockets, your mortgage will still be $1,500 a month.

Invest in assets that are seen as “stores of value.” Gold prices have been increasing in part because the value of the dollar is decreasing. Gold is seen as having an inherent value in any economy, so that ounce of gold has a price in Euros and RMB even if the dollar becomes worthless. What this means is that by putting your money into gold, it becomes immune to the eroding effects of inflation on the US dollar.

Invest in the stock market. As appealing as safe savings accounts are, the higher rates of CDs and savings accounts at online banks can’t beat inflation. When you invest in the stock market, you introduce risk but you also put your money with companies that can respond to higher levels of inflation. This is a bit of a corollary to the idea of investing in stores of value, as shares of stock do have inherent value.

One key point to remember is that while all three of these ideas can protect you from inflation, they introduce other risks. Buying a home protects your housing payment from inflation but it doesn’t protect you from the risk your home may lose value. The stock market may lessen the pain of inflation but it introduces other risks you may not be comfortable with.

Jim writes about personal finance at Bargaineering.com.

Comments

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  1. Pinget says:

    Nothing you can do will beat inflation. One dollar in 1970 equals $6 now. How do you get a 600% return on anything?

    • Nick says:

      Over 40 years, that works out to about a 4% annual rate, which isn’t that hard to beat. Over that same time, the stock market is up an average of 8% a year (even at the bottom of the crash last year, it would be 6-7% average return).

    • evnmorlo says:

      Gold was $35/oz in 1970

    • FreeSammiches says:

      Your math is all sorts of wrong. First off, to gain the additional $5 in a single year, you would only need to earn 500% because you have the original dollar. That being said, it is 2010. 1970 was 40 years ago. If we use your numbers of $1 in 1970 being the same as $6 in 2010, that’s only an inflationary growth of about 4.7% per year over 40 years – easily attainable.

    • babyruthless says:

      Assuming your numbers (that one dollar in 1970 = 6 dollars in 2010), if you put one dollar in an investment that yielded a mere 4.5% compounded continuously, you would have come out ahead of inflation.
      A=Pe^(r*t) where A is your amount after t years, P is your principle, r is the annual interest rate.

      If you let P=$1, r=0.045 (4.5%), and t=40, you will find that A=6.049. So your one dollar has grown to six bucks and a nickle, and you’ve essentially broken even with respect to inflation.

      • Loias supports harsher punishments against corporations says:

        And where, pray tell, can I find this fixed 4.5% investment?

    • sleze69 says:

      Well $1 to $6 over 40 years is not a 600% return. If you use an excel spreadsheet, this is very easy to calculate: Start with A1 with a value of $1.00 then make A2 a value of “=a1*1.05″. Copy A2 into a3 to a40 and voila – $6.70.

      So inflation has been around 4-5% in reality. A 600% return would result in the equivalent value of a 1970 dollar to be $2.22792E+30. That is more like Zimbabwe dollars.

      • Pinget says:

        So you’ve got to get 4% a year just to tread water. Wonderful. Thanks for the math lesson.

        • Poisson Process says:

          Well, that’s better than the original 600%. Would you rather sieze69 never taught you anything?

        • MonkeyMonk says:

          Odd reply coming from somebody who was just corrected of being incredibly wrong. Not surprising I guess.

        • howie_in_az says:

          It’s commonly accepted that the stock market gives an 8% return averaged year over year. Sure right now it kinda sucks, but buying low could give you the opportunity to sell high.

      • tungstencoil says:

        Thank you. I was going to reply about something regarding the magic of compound interest, but you saved me the maths.

        Pinget, there’s an approximate rule of thumb with compound interest: 70 divided by the rate in percentage points (so, say, 70 / 4 for 4% interest) approximates how long it takes to double the value of something.

        SideshowCrono is also correct that it’s difficult to measure; when I was a kid in the 70s/80s, a tiny TV was *really* expensive – several hundreds of dollars. Today, you can get a much higher quality (color even!) TV for same or even less dollars, not including any increase in inflation. My first personal computer was $800; discounting inflation AND the obvious discrepancy in power/quality.

        This does not mean inflation doesn’t impact prices; just look at housing or eggs or cars. It just means it’s complicated.

    • SideshowCrono says:

      For a lot of things 1 dollar today buys you a lot more than 1 dollar in the 1970s. One dollar buys a lot more computing power today for instance. Inflation is a tougher thing to measure than the the CPI would lead you to believe.

      And according to Yahoo Finance, the S&P closed at 85.02 in January of 1970. Today its 1,225. That’s over 14 times as much before you even factor in the yearly income such a strategy would produce. Certainly a bit better than your stated affects of inflation.

    • rpm773 says:

      I dunno. By sticking your head in the sand?

    • DanRydell says:

      First of all $1 -> $6 is only a 500% increase.

      Secondly, you could have gotten a 1382% return on your investment if your investments matched the Dow Jones Industrial Average between 1970 and now.

      Owned.

      • Thebestdudeeverr says:

        ZING!!!!!!

      • Clyde Barrow says:

        Oh good grief, 500% or 600% big deal. It’s semantics by that point and it doesn’t make a difference. It’s still inflation and it sucks. Offsetting taxed-investments with tax-free investments is really the only hedge against inflation.

        • Loias supports harsher punishments against corporations says:

          Did you happen to read the 2nd sentence which made the 500/600% blown out of the water?

  2. jason in boston says:

    Invest in a non-cash, non-commodity? Sadly, I can only think about metals.

  3. Buckus says:

    Step 1: Die.

    • Ichabod says:

      Don’t die yet, wait for gold to crash,(it will it’s way over priced), buy gold, sit on it six months to a year,sell gold,,,,profit form idiots!

  4. agpc says:

    Everyone rushing into gold reminds me of 2008 when everyone rushed out of the stock market. If you really think we are going to suffer society ending hyper inflation (pro tip: we won’t) I suggest you buy guns, tons of ammo, food, and potable water. Gold will be useless, as will a piece of paper saying you own a certain amount of gold stored in a vault somewhere hundreds of miles away.

    • INsano says:

      Exactly why I, without any previous experience and a disdain for the casino that it is, dumped my life savings into the stock market in March 2009 as everyone else pulled it out. That Warren Buffet quote that everyone loves but sheeple don’t listen to–yeah that’s the one. I figured, if it goes to guns, canned food, “The Road” and “Deliverance”, so be it, but I have nothing to lose by doing it.

      So long and thanks for all the fish.

      • DH405 says:

        How’s the stock investment working out?

      • magus_melchior says:

        I didn’t dump my life savings in there as I didn’t have much in savings to speak of at the time, but I did make a number of buys in February-March 2009. They’re worth about 150-200% of their cost basis now, and still holding up; those buys essentially erased any losses from 2008, and then some.

        I didn’t invest in banks out of principle, but I may have missed out on huge bargains. Live and learn. Shame that credit unions aren’t publicly traded (and that’s probably a good thing, too).

        I think it’ll take quite a bit more than a housing/credit market panic to crash the US economy the way it did in 1929, especially since no one in positions of authority seriously wants that to happen.

    • Clyde Barrow says:

      I realized that gold is the new “super-buy” but anytime I see this, I am very wary of jumping into the new fad.
      Two years ago I put my entire 401k into government funds. Don’t get a lot, but I haven’t lost a dime either.
      Next month I am buying a Custom Whole Life Policy and dropping my tax returns into it every year. That won’t be a life saver but when I retire, I’ll see about a 4% gain on my money AND it’s tax free.
      With my house being paid off byretirement I can count on another bucket of cash and fortunately I didn’t buy a big foot home but I still lost some value on it. Maybe when we all retire we’ll get that back too.

  5. duxup says:

    There was talk about inflation rearing its ugly head within six months of the first bank bailouts. Here we are years later and inflation is 1% and falling. With a government now poised to do squat for a while most of the talk when it comes to big investment funds is a worry about deflation.

  6. Retired Again says:

    NOT suggesting you go buy but THREE “things” never cease in marketplace.
    GUNS BOOZE TOYS
    also
    demand for women but that would mean buying a “ranch” in Nevada.

  7. Bob Lu says:

    Consider put some of your money in Treasury Inflation-Protected Securities (TIPS). It won’t alway “beat” real inflation (the return of TIPS is based on CPI, which can be different from real inflation), but the risk is relatively low (unless you believe what is coming is not a reasonable level if inflation but the total crash of US dollar).

  8. muscles says:

    Stocks, gold, and real estate aren’t investments that are particularly well-suited if your goal is to protect against inflation. They all carry tremendous risk, and they can all go for years without returning enough to match inflation. The US government offers one investment that is designed to protect against inflation. Treasury Inflation-Protected Securities, more commonly known as TIPS, are bonds backed by the US government that return a fixed percentage plus an amount equal to the level of inflation as measured by the Consumer Price Index. They can be purchased through investment funds and directly from the government at http://www.tresurydirect.gov/.

    These may be a good investment to protect against inflation, but they don’t protect against a lot of other risks and their returns may be much less than some other investments. Most people who invest should do a goodly amount of research into all their options, and not simply take the word of some guy with a website or that of some guy who can post on a blog. It’s amazing how many people buy thousands and thousands of dollars in investments without doing as much independent research as they would if they were buying a car or a pair of shoes.

    • Consumer David says:

      …or taking advise from someone who can’t spell Treasury! ;-)

    • magus_melchior says:

      The series I savings bond is also indexed against inflation. They’re a longer-term investment than TIPS, but can be bought in any dollar amount, which is nice for those who don’t have thousands of dollars to set aside for 20+ years.

      And here’s the correct link to the Treasury Direct site: http://www.treasurydirect.gov/

      Gold is at an all-time high because everyone was running scared in 2008-2009, and because China is producing/buying/using metals at record levels. They’ll mess with the market if it means they get their way– look at what they’re doing with rare earths (and they’re not alone– the Indian steel tycoons are making the old 20th-century industrial monopolists look like amateurs). Like any other commodity, you really have to know what’s going on in the entire market if you’re going to invest in it– it’s not meant to be a “safe haven” for those who are scared that the US and EU are going to collapse.

      • magus_melchior says:

        Corrections: I-series bonds mature in 30 years, while TIPS can have varying maturities (5-30 years). I-bonds can’t be resold (you can redeem them after a year with a 3-month interest penalty like CDs), while TIPS are regularly traded on secondary markets.

        Tip: If you’re stashing cash for longer than 15 years, go with the I-bond. If you’re making a medium-term investment that you want to secure against inflation, go with TIPS from your broker (or from the Treasury).

      • magus_melchior says:

        One more correction: You can invest as little as $100 in a TIPS, but you can buy an I-bond at any amount greater than $25. TIPS generally come in bigger chunks of cash, so they’re suited for those who are more serious about investing.

  9. Laines says:

    Couldn’t all three of these featured suggestions be summed up with: Give your money to the banks?

  10. jamar0303 says:

    There’s always forex. Inflation in one country isn’t the same as inflation in another and interest rates will differ accordingly. Alternatively, you could be of the belief that quantitative easing will be thing that forces China to drop its US$ peg due to inflation problems over there and buy into the RMB accordingly.

  11. Coelacanth says:

    Consumerist – are you seriously advancing the idea that buying gold is a responsible way to invest money as a hedge against inflation? The vast majority of gold prices have skyrocketed within the last three years, when inflation has been relatively mild.

    It’s hotly debated right now whether there’s a gold asset bubble, and if it turns out there is, people could potentially stand to lose. People shouldn’t rush to invest in anything – stocks, bonds, commodities – unless they thoroughly understand the risks involved.

    Personally, I happened to have some gold holdings back when it was around $400/oz. which are obviously doing quite well at the moment. However, I’m not sure i’d increase my position at current market prices.

    • MaxH42 thinks RecordStoreToughGuy got a raw deal says:

      That’s why having a good balance is important, and rebalancing is crucial. I have 1/3 of my Roth IRA in a precious metals fund, which has done very well as gold has skyrocketed. Every so often I sell off some of those shares and buy the other funds that make up my Roth to get the precious metals fund back to 1/3. When it falls below 1/3, I’ll be buying more of it. A guaranteed way to buy low and sell high without having to try to predict anything. (OK, not exactly literally true, but IMO as close as you can get to doing so.)

  12. crashfrog says:

    Here’s how you protect yourself against inflation – get in a bunch of low-interest debt. As the price level increases, the value of interest-earning assets decreases. Since your debt is someone else’s assets, you transfer the decreasing value of your money to them.

    It’s simple. Inflation is bad for people who have a lot of money. It’s neutral-to-good for people who have a lot of hard goods or provide services. It’s great for people who have a lot of debt – and isn’t that just about everybody, these days?

    Embrace inflation.

  13. Blueskylaw says:

    Gold for December delivery settled at a record high of $1,397.70. What will happen when the economy starts getting better? Money that you have now should be put into depressed stocks and held onto, and not invested in something that is at a record high, but then again, I’m sure your broker who gets paid to trade your account would disagree with me.

    • Blueskylaw says:

      Warren Buffett, the world’s richest investor and billionaire businessman, has not yet fallen for gold. His ideas on gold and why he is not interested or obsessed with investing in the shining yellow metal should be an eye opener for all those who are running after gold.

      Here are some reasons why gold is not luring Warren Buffett, and why there are better, erudite and lasting investing options than gold.

      ”Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” Warren Buffett.

      **Buffett feels that unlike other precious metals like silver and platinum, gold is too soft to be put to use in the industrial, construction and automobile sectors. Instead, its valuation is largely based on the public’s fear and economic uncertainty.

      • TouchMyMonkey says:

        Not to mention that at $1400/oz., it’s a lousy investment. Another bubble waiting to burst. There is no inflation – practically zero – so why is gold so high? It makes no sense. When people figure it out, there will be a lot of Glenn Beck fans going broke, with Goldline and G. Gordon Liddy laughing their asses off at those stupid people.

        And this is even considering that a lot of them are already out a big pile of cash because they bought “collectible” gold coins instead of bullion. You want to know why owning gold was outlawed in the 1930s? Because the currency was still on the gold standard. It isn’t now, so there wouldn’t be any point to the government reinstating the gold ownership ban.

      • huadpe says:

        Um, I don’t know why you’re obsessed with Warren Buffett, but gold definitely has industrial applications. Gold is used commonly in electrical connectors because it is intensely non-corrosive. In fact, gold is about the hardest metal to corrode on earth. Also jewelry is certainly a market for gold, and a large one.

        These don’t necessarily justify $1300+/oz, but they are uses.

        • Blueskylaw says:

          I’m not obsessed with Warren Buffet, but as the world’s most successful investor people tend to listen to his points of view. If gold was priced strictly by its actual demand for use in electronics and jewelry, I’m sure the price would be much lower than its current price of close to $1400 an ounce. Warren Buffet even gave a vivid example of this craze. If you took all the gold mined to date and sold it, you would have about 7 TRILLION Dollars. If you take the value of all the residential homes in America you would have about 15-16 TRILLION Dollars. So which would you rather own, all the gold ever mined or roughly half of the homes in America?

  14. coffeeculture says:

    I’d love me some inflation right now, I have more debts than assets and it would do wonders for my repayment.

  15. beoba says:

    Gold is a SPECULATIVE COMMODITY, DON’T follow Jim’s advice. Gold has historically had lower returns and higher risk than the S&P 500: http://spreadsheets.google.com/pub?key=pYSRNXThZbE5OU05nATtGHg

    Between 1980 and 1985, which you may remember had two nasty recessions, you would have lost half your money. Isn’t gold ‘supposed’ to do well in hard times?

    When you buy a stock or similar traditional investment, you’re getting a share of a company’s future revenue and productivity. Gold (and other commodities), on the other hand, are purely speculative objects that you have to keep locked up in a vault somewhere, in hopes that some Greater Fool will someday pay more for them than you did. Remind you of anything?

    Gold is worth considering as a COMPONENT of a portfolio, but it’s never a good idea to put all your financial eggs in one historically risky basket.

    If you’re worried about inflation protection, just get something like I-Bonds or TIPS.

    • DubyaT says:

      Yes a commodity with more industrial uses like copper or silver would be better.

      • TouchMyMonkey says:

        Silver is at $26. Unbelievable. I think I’ll gather up my coin collection, worth more now as bullion than as collectibles, and have a merry Christmas with the proceeds.

  16. Power Imbalance says:

    I’m just going to start printing my own money too.

  17. DubyaT says:

    Short the treasury market through an ETF like TBT. When inflation or inflation expectations increase yields follow suit. When yields go up the price of treasuries go down. This will take place. The Fed wants to pump the stock market and money will pour out of the bond market. This trade should be very lucrative. Full disclosure, I own shares of this ETF.

  18. humphrmi says:

    I’m going to chime in, like others, about the foolhardy advice about gold. Only invest in gold if you think the value of gold is going to go up long term. Don’t invest in gold thinking you’ll have a hedge against a falling dollar. If the price of gold falls, even if the dollar falls, you will have less value than you started with.

    They alluded to one sound move with “mortgage a house” – this is true of any loan. In general, if you believe that inflation will run amok within the calendar term of your loan, and stay that way, then you’ll do better financially if you borrow whatever you can afford to pay now. You’ll be paying back devalued dollars over the term of the loan (and inflation), and if you’re smart you’ll invest the money you borrowed into something that will pay a higher rate of return than you pay in interest.

    Of course, you should only do this if you’re strong-willed enough to pay back the loan on time, and smart enough to invest the capital properly.

    The usual caveats apply – I’m not a financial advisor, and this comment should not be construed as financial advice.

    • RickScarf says:

      That will be great until the government forces restructuring of mortgage contracts to save the banks again

      • AnthonyC says:

        They’ve never done that before. Why should they now?

        • tooluser says:

          If the government can force the recharacterization of mortgages to benefit the consumer, they can similarly force the recharacterization to benefit the banks. In a few years it could easily be interpreted that all those people paying 4% or less on their mortgage are enjoying an “unfair advantage”, and the government could step in and make everyone pay more. Especially if the mortgage interest rate deduction is repealed, there’s really no reason for the government to care what you pay, just that things run their way. If they can force you to buy health insurance, the can force you to go into greater debt, strip naked at airport checkpoints, or make you do anything at all, really.

          That’s the problem with big government — you are nothing to them, and there is no end to the ways they can mess with you.

          • evnmorlo says:

            If interest rates go up housing values would go down. People would be walking away from their houses again and not even interested in making their normal payments

      • humphrmi says:

        I wasn’t talking about mortgages.

  19. kmw2 says:

    Better idea: holding off on a big purchase? Car, computer, whatever – buy it now. If you can afford to and your kid’s university offers it, prepay the next three years of their education (or however much they’ve got left). Pay down any debt you’ve got – paying debt is like saving money. Do not buy gold – it’s extremely high priced for its actual use, and is likely headed for a bubble.

  20. tooluser says:

    In the movie “Die Hard”, Hans the terrorist only wanted $600,000,000. Seems like a very reasonable request compared to $600,000,000,000. If only we had 1000 Bruce Willises to fight the Army of the Twelve Monkeys (there are 12 federal reserve banks, each with a governor). Not that I have anything against monkeys, or money.

  21. backbroken says:

    Actually, it’s not an absurdly large number at all.

    It’s about time the fed moved to increase inflation. Moderate inflation is a necessary ingredient to getting ourselves out of the mess we are in.

  22. MadManMoon says:

    Are you kidding me? It’s absolutely absurd to advance this baseless fear when the so called inflation hawks have been dead wrong in their claims of impending catastrophic inflation for the past 3 years.

    We are in a deflationary trend. Plain and simple. Wages, housing prices, the amount businesses can charge for goods and services — all in decline. The consequences of which have the potential to be far more destructive than short term inflation.

    For three decades the Fed has been extremely (and rightly) conservative in their management of inflation. With that in mind, when one looks at the actions they are taking, it should give pause to just how much of a threat deflation has become.

    • fredmertz says:

      Almost every single commodity is at multi-year or all-time highs (check out cotton — highest price since the Civil War) and the Federal Reserve is printing money as fast as they can devaluing the dollar every step of the way, but there won’t be any inflation?

  23. richkee says:

    Purchasing a house will not protect you from inflation. The goods and services in other areas of the economy will inflate regardless, leaving you with less money to pay that mortgage with.

    • fredmertz says:

      This doesn’t make sense. Don’t lock in your housing cost, because everything else will go up? That’s precisely the point of locking in your housing cost.

    • Ragman says:

      The fixed mortgage won’t increase. Rent WILL increase. The only way to game a good rent over the years is to play musical apartments, and not many people want to play that.

      Yeah, all the other costs will increase, but you can take care of a house and yard yourself, unlike an apartment.

  24. Jane_Gage says:

    I hedge with TIPS in my IRA like Bob. Gold is just another bubble.

  25. Costner says:

    The average rate of return over the past five or six decades in the stock market has been 9.8% (Dave Ramsey talks about this all the time). Thus based upon that, the dollar you invested in 1970 would be worth about $42 right now.

    I’d say that is a tad more than $6, but then again if you want to stick your money under your mattress don’t let me stop you.

  26. Costner says:

    Buying Gold would be idiotic right now. Who buys an investment when it is at all-time highs? That would be like investing in banking stocks and AIG a couple of years ago before the market crash. A much better idea is to buy stocks that have decreased quite a bit from their all time highs but are poised for growth. I invested heavily in some banking stocks along with some larger companies such as GE, and my current rate of return on those investments is currently 22% on the low end and a whopping 59% on the upper end.

    Hard to complain about those types of returns in one year.

  27. Forty2 says:

    This is horrible advice. Go into debt with a mortgage? Buy gold, which is in a bubble? Invest in the stock market, which is also in a bubble? Nonsense.

    Rent, pay down debt, invest prudently. Inflation is not a given due to QE2. Housing will become cheaper. Food and fuel will not, if current commodity prices are any indication.

  28. RobofNYC says:

    TIPS, short term are not great – they are yielding -.5 percent below the inflation rate. That is a first. So, a great investment they are not (unless inflation become rampant). I Bonds are yielding 0%; effectively just matching the official inflation rate.

  29. nocturnaljames says:

    Gold was a bubble in May this year according to consumerist, at $1227/ounce:

    http://consumerist.com/2010/05/is-gold-fever-the-next-hog-bubble.html

    So now that it is $1400 it is time to buy?

    “Invest in the stock market”, YOU GOT TO BE KIDDING ME. Everyone knows the stock market has become outrageously corrupt and manipulated by bots. You are taking an outrageous risk if you are buying into the stock market now, when it’s rebounded to insane highs not based on fundamentals. It’s a big game and retail traders get eaten alive.

  30. Judah says:

    I would NOT invest in stocks to beat inflation. Not in the current financial climate.

  31. code65536 says:

    Yea, that’s it, toot the horn of the uninformed inflation hawks. Right now, any sign of inflation would be a GOOD thing. We are in a deflationary slump right now, and if it weren’t for some commodity prices going up (which has everything to do with global supply and demand issues outside of our control and nothing to do with our monetary policy or economy), we would be in an outright deflation right now. And let’s ask how the Japanese of the past two decades, Americans during the Great Depression, and Americans in the late 19th century how they felt about that!

    Historically, *deflation* has always been the greater problem. Observe the very heated battles over whether or not to increase the money supply by minting silver (to fight deflation and perhaps even introduce some healthy inflation) in the late 19th century in the US. Observe the massive deflationary slump that was the Great Depression. We in the United States have forgotten about the horrors of deflation mainly because sound monetary management has maintained a healthy level of price stability (keeping it slightly on the side of inflation–2-4% per annum–and never letting it venture too close or into deflationary territory) since the Great Depression so, like polio, we have all forgotten the disease of deflation, and also because our most recent memory of price stability problems has been in the form of the period of high inflation in the 1970’s (caused by a sudden supply shock resulting from the Oil Embargo, perpetuated because high inflation–like deflation–is self-perpetuating, and finally ended when the embargo ended and when Volcker spiked interest rates to create a demand shock–and a temporary Fed-engineered recession–that broke the perpetuation of said inflation).

    That society now worries about inflation is, from the perspective of economic history, a very recent thing. Yes, there have been cases of hyperinflation that fear-mongers like to point out, but Weimar Germany and Zimbabwe are really extreme edge cases, where the real problem were severe macroeconomic supply shocks (in Germany, the result of severe punitive reparations that were untenable, and in Zimbabwe, well, because Mugabe is a madman and his land “reforms” basically destroyed much of the country’s production). None of that is remotely applicable in our case–in fact, our recession is a classic demand-shock recession, quite the opposite situation!

  32. Plasmafox says:

    I wouldn’t speak so confidently about gold. I suspect there’s a bubble on the horizon, with a few investors owning a lot of gold and using their wealth to advertise it to other people. Those key few are going to sell someday, and everyone else is going to be S.O.L.

  33. PhilDru says:

    I’ve seen a few comments about investing in TIPS. Why would anyone invest in a government program set up by bureaucrats who skew the numbers of the CPI and many other indexes? Did anyone ever wonder why the Federal Reserve so adamently refuses to be audited or refuses to publish the M3 report? Who is planning to purchase all the debt being created to service the $3.7 Trillion in interest to be paid within the next year? The suckers who purchase TIPS! There is NO inflation! Tell that to the Social security Beneficiaries or Annuitants who rely on those vehicles to keep themselves fed and to pay the Medicare expenses. How many of the DOW companies are still in the DOW from 1920? Have the precious metals ever been worthless? Put your noggins to work, folks.

  34. theora55 says:

    A dollar in 1970, invested in stocks, probably did pretty well.
    People who had lots of debt and paid it back with inflated dollars came out ahead.
    It’s probably too late for buying gold or silver to be a useful strategy.

    For a number of reasons, some inflation would be better for most of us than deflation.

    There are smart choices to make, but following the loudest guy in the crowd is probably not one of them.

  35. Jesse in Japan says:

    Just put your money in several different currencies (preferably from several different continents).