Inflation is coming. Are you ready?
Listen to what these three luminaries said about inflation:
- Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man. – former president Ronald Reagan
- In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. – former Federal Reserve Chairman Alan Greenspan
- Inflation is taxation without representation. – Milton Friedman, Nobel Prize winning economist.
You can’t hide from inflation
Have you thought about what inflation could mean for your accounts in 20 or 30 years?
With average inflation, over 20 years, prices historically have doubled.
Everything you buy today – in 20 years will cost twice as much. Will you be able to maintain your standard of living when that happens?
And, that’s only if inflation stays at the low levels that we’ve seen in recent years. That’s not likely.
If – as experts believe – inflation picks up significantly due to the monetary policies from the Federal Reserve, in combination with skyrocketing debt levels and a weakening U.S. currency – prices could double or even triple much sooner than 20 years.
Peering into the future – the debt dilemma
The COVID pandemic in 2020 triggered massive government spending which sent the national government debt spiraling higher to new record highs above $17 trillion. Alarm bells are going off – yet policymakers just spend more. The ballooning government debt is out of control and exposes are nation to a dangerous economic future.
How high could our nation’s debt go?
Right now – it’s on a vertical climbing path – straight up.
“By the end of 2020, federal debt held by the public is projected to equal 98 percent of GDP. The projected budget deficits would boost federal debt to 104 percent of GDP in 2021, to 107 percent of GDP (the highest amount in the nation’s history) in 2023, and to 195 percent of GDP by 2050,” according to the non-partisan Congressional Budget Office (CBO).
Here’s what else the CBO said: “High and rising federal debt makes the economy more vulnerable to rising interest rates and, depending on how that debt is financed, rising inflation. The growing debt burden also raises borrowing costs, slowing the growth of the economy and national income, and it increases the risk of a fiscal crisis or a gradual decline in the value of Treasury securities.”
Inflation and Investments
Hard assets will soar
As government debt continues to climb, inflation will grow and the value of hard assets like physical gold, silver and real estate will soar.
Looking back to early 1980 – when consumer inflation surged to nearly 15 percent, what did gold do? “Gold more than kept pace, hitting a then-record $666.75 an ounce after a fifteen-fold rise over the previous decade,” according to a Reuters article.
Gold is already in the midst of a historic bull market – up 24% this year – with a new all-time record high. The experts predict even higher prices ahead in 2021 – with $3,000 an ounce forecast. In the coming years, gold is set to soar.
Inflation hurts stocks
Investing in stocks is riskier than any point in history – especially for those looking to preserve their nest egg.
Here’s what billionaire investor Warren Buffett wrote about inflation in his classic piece for Fortune magazine in 1977: “The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. … If you feel you can dance in and out of securities in a way that defeats the inflation tax, I would like to be your broker — but not your partner.”
Stocks fall (or plunge) during rampant inflation because it reduces how we value future income – as inflation eats away at that future value. A stock’s price is a risk-adjusted value of a company’s future cash flow – and inflation reduces that to fall in value.
Stocks are not the answer in an inflationary environment. Inflation destroys stock market wealth and breeds fear among stock investors.
Inflation can cause interest rates to skyrocket
History is quite clear on what inflation does to interest rates – it sends them shooting higher. In fact, we saw double-digit interest rates in the early 1980s.
With inflation raging as high as 11.6% in 1980, Fed Chair Paul Volcker took action.
He raised the Fed funds rate to nearly 20% — which sent 30-year mortgage rates to a high of 18.63% in 1981, according to data from the Federal Reserve Bank of St. Louis. How could you ever buy a house with mortgage rates that high!
These double-digit numbers may sound unbelievable. But, it wasn’t that long ago – only 40 years. You bet it could happen again – and in fact the Fed is creating the environment for that now!
Inflation: what happens to your money in the bank?
Rising inflation also severely impacts any money you have sitting in the bank.
While you may get a tiny amount of interest from a CD, savings or money market account, the growth of inflation overtakes that interest – meaning your actual money, the purchasing power of it – is falling in value. Inflation destroys the value of your money.
You can protect your accounts against future inflation
Inflation is a deadly, scary and corrosive economic force. And, the government and Fed are setting this country up for another bout of severe inflation in the years ahead.
There are ways you can protect your financial future, even in an inflationary environment.
You need to buy assets that rise in value – as inflation climbs – and that is exactly what gold does.
Here’s what one of Donald Trump’s top economic advisors during his 2016 presidential campaign said about gold.
- Historically, gold has always been a safe haven against inflation and a safe haven in times of political instability. – John Paulson, billionaire hedge fund manager
Protect your assets with gold bullion
The U.S. economy’s instability is like a ticking time bomb. Are you looking for a way to protect your savings and investments from inflation?
Owning physical gold and silver is a time-tested, historic hedge against inflation. It’s a simple solution that can protect your financial future. Do you own enough?
If you have questions about how future inflation could impact your investments or finances – please contact a Blanchard portfolio manager. We can also provide customized recommendations on tangible assets best suited for your personal circumstances, goals and investing time-horizon.
Read Part 1 of our inflation series here:
Read Part 2 of our inflation series here:
Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.