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2009.04.06
More on the (price) inflation/deflation debate.
Does the Fed have the power to reverse a deflationary trend to create "positive" inflation and restore the "goldilocks" economy? The answer to this question is important as it will determine what financial actions that you should personally take to weather the current crisis. If you expect deflation, you should pay off your debts and hunker down by increasing your savings. In a deflationary environment cash is king. If however you think that the Fed is all powerful and can micro manage the economy to the extent that the deflationary tendency that we are currently experiencing can be reversed and result in moderate inflation of 2% to 4% then you should buy stocks in undervalued US stocks that will survive the downturn and also invest in commodities such as oil, copper, gold, silver and grains. Lastly if you believe that the Fed can and will defeat deflation but will be unable to contain the resulting price and wage inflation then you should borrow money at today's low rates in order to invest in just about anything but primarily gold, silver, oil/gas, uranium and perhaps food. So is the Fed likely to win and get us to that perfect place? I think not. I believe that the measures being taken by the Fed are experimental and will have all kinds of unintended consequences. I personally believe that a prudent action to take is to reduce your spending, pay down your debt and save money while constantly sniffing the economic winds for any sign of (price) inflation.
The following article in Sunday's Washington Post may help you focus on the problem and try to understand it better. http://www.washingtonpost.com/wp-dyn/content/article/2009...
Gerry
16:51 Posted in Finance | Permalink | Comments (3) | Email this
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This is very unpredictable. The best thing we could do whether it is going to inflate or deflate is to save our money, be conscious, pay debts and be wise in where we spend each cent.
-brian
Posted by: St. Maarten luxury condos | 2009.04.13
I agree with much of the analysis presented by the well-known deflationists. The main point of contention revolves around the ability of the monetary authorities (the Fed and the Treasury in the US) to keep the total supply of money growing.
Posted by: Buying a franchise business | 2009.06.08
It seems to me that the most important question you can get right in investing is whether, on a ten year view, expectation for inflation will decline or rise.
this is very helpful information for me..
Posted by: synthetic lawns | 2009.09.08
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