Inflation

Inflation is consistently rising at a rate that exceeds the interest rate on U.S. Government Treasury Bills.  That unusual situation represents a negative real rate of return.  People with savings in the bank or investments aimed at earning cash flow are likely losing purchase power every day as inflation reduces the value of their savings faster than the minimal cash flow can increase them.  People who have debts instead of savings may think that inflation will be a good thing by letting them pay off debts with cheaper dollars later.  Those people will regretfully discover that debt service costs will mushroom as inflation drives interest rates and the cost of living higher, at the same time that job prospects become less secure in a slowing economy.  The twin horns of stagflation can be brutal to those who are in debt.

 

The only good news this Optimist can see about increasing inflation is that it may help people to pay down previously accumulated debt.  It is essential for anyone in debt to immediately begin to reverse that process by spending less, and by paying down any high interest rate debt.  A pattern of rising inflation also offers an investment opportunity for people who have assets instead of debts.  That opportunity is to purchase Gold and Silver whenever the price drops briefly.  Active investors may want to sell a small portion of their precious metals holdings when the price rises substantially, to raise additional funds that can later be used to purchase more Gold and Silver during the inevitable price corrections.

 

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This commentary presents only the viewpoints of the Optimist, and it is intended only for perspective and entertainment. Please do not interpret any portion of this work as investment advice. If any of the concepts discussed here appeal to you, then you must do the work to decide if and when and how you should invest. The Optimist does not ask for any profits you make, and he cannot be liable for any losses incurred as a result of your investment decisions. The Optimist wishes you the best of luck in whatever you decide to do or not to do. Cheers!

 

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