Inflation Returns...get prepared

For the last 11 months, we have witnessed a catastrophe drop in the prices of all goods. Commodities were absolutely hammered and most lost 50% of their value or more in that time. The collapse in these prices along with home prices in the US has created a deflationary adjustment on a scale that we have not experienced for decades.



The government response to this economic crisis has simply been to pump as much money as printable into the system. They have opened up their coffers and have created a massive injection that has never been witnessed before in history...a




t least recent history. You can see from the chart below that we really are in uncharted waters when it comes to our monetary base in US Dollars.

What does this mean for us as investors and more importantly people trying to get by each day. Inflation or what some people believe, HYPER INFLATION will have a number of impacts on our investments and our lives.

1. The cost of all goods priced in US dollars will go up. That includes oil, natural gas, gold, silver, copper, uranium, nickel, etc. These items will essentially double in price in the next year and will continue to go up for years to come.

2. The cost of food will go through the roof. Remember those days when a loaf of bread was under a $1.00. Not anymore.. Your food bill will be hit hard by inflation and will benefit food producers and the government of course since they will receive more tax income.

3. Real Estate will re-bubble and that means go up! This may take a little while longer for people to embrace based on the heartache caused by the last collapse. Eventually, people will again turn to their houses as ATM's and this the government believes is the only way to really re-ignite the economy.

4. Stocks should increase in monetary value...due to all the money floating around.

Now a lot of people have been comparing the japanese economy of the 1980's and its deflationary crash to the US today. Japan has been stuck in an economic bust for the last 20 years and might never get out. Technology will be the key to Japan's growth but with inflationary pressures around the world causing commodities to explode in price, you can right a recovery off.

The result of the above situations could be a lot of very unhappy people. There will be a disconnect between prices going up and job creation. We can already see this with unemployment levels in the US nearing 10%. The burden will once again fall on governments around the world to bail out their economies. Governments have very few options which include cutting taxes, lowering interest rates and printing money. All of these options are inflationary in nature except for cutting taxes.

The following discussions on CNBC with Jim Rogers demonstrates the impact that coming inflation will have. Interestingly, Jim says he is short nothing at this time. He believes that the massive printing of dollars will artificially propel the stock market higher. The next post will look at how to profit from an inflationary environment.

Here is a series of recent Jim Rogers discussions.




Second Video




Final Video