The U.S. government and the Federal Reserve keep trying to convince people that inflation is not a problem. They want us to believe that inflation is because of consumer demand. This is such an elementary view of economics. Inflation is a result of massive money printing. There is too much money in the system and they have artificially stimulated the economy. These decisions have brought about a trillion-dollar problem.
The trillion-dollar problem has created an unsustainable situation. We have seen inflation skyrocket. Prices are at an all-time high. They only seem to be getting worse based on projections.
Jerome Powell with the Federal Reserve says the Fed has the tools to fight against inflation. What Powell means is raising interest rates. Janet Yellen the Secretary of the Treasury agrees and believes that the Fed can address the problem. They believe inflation can easily be fixed with higher interest rates. They both claim that this isn’t coming any time soon.
What does that mean? This means that those in charge believe that they can continue to print money forever without consequences. The trillion-dollar problem will continue. I hate to break it to you, but that is not true. I would like to think that reasonable people would understand that at some point it all has to end.
Warren Buffett believes that we are seeing inflation. He shared in a shareholder meeting that we are seeing “substantial inflation”. We are seeing huge inflation. It is a mixed bag.
So, what’s the good news about inflation. If you have long-term debt, you will be able to pay it off more easily. Why? When inflation increases that means the value of your money decreases. That means that while debt stays the same, it actually will become a smaller percentage over time. There are definitely some exceptions to this, but overall this is true.
The bad news is that prices go up during inflationary periods and often very quickly. So, we are essentially buying power that goes down during an inflationary period. Inflation is also detrimental to savers. The value of your money is being decreased while you save it.
So, what is the answer to the trillion-dollar problem or how do we protect ourselves from inflation? We must store our value. Money is quite simply a store of value or an exchange of value. The store of value concept is to put your money in something that will hold or exponentially grow in value. We call these assets in the financial world. You need to buy or create assets. What assets should we be looking at? Here are a few examples of assets that can provide a hedge against inflation.
Commodities: Owning Gold, Silver, Food, etc. can be very valuable. Eggs were extremely valuable in Venezuela during hyperinflationary times.
Low Priced Stocks: Value-based companies are valuable during inflationary times. Buy low and hold those valuable companies during hard times.
Businesses: Cost of business rises and with the rise of inflation, you will see more cash flow as you raise prices. This will help be a hedge of protection if done right.
Real Estate: Owning property can be very valuable during inflationary times. Many people have seen great success holding property during depressions and recessions if done right.
Cryptocurrency: Owning cryptocurrency can be very valuable during an inflationary time period. I am a firm believer in Bitcoin. I think Bitcoin has a huge upside in being a hedge against inflation. I am putting a lot of my own capital in Bitcoin to prepare for rising inflation.
Here, at Explore Financial Freedom we study finance. We are here to help. Please contact us if you would like to learn more about having a hedge of protection against inflation.
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