The American Age of Inflation is Over

"The American era of inflation is complete." That says economist Robert Samuelson in his December 2 Washington Post column.

This type is common refrain. We often hear that this or that is finished - that such things only happen in the past, and that our new, more advanced time is above such mundane things. It is reminiscent of the late investing 90 statements of the end value and the futility of p / e ratio, and (can you believe it?) End of falling markets. Such nonsense is what houses of cards are built on.

It is in fact just such declarations to warn of the impending disaster that awaits us. The easiest way to know when a trend or characteristic may be on the horizon is the cacophony of experts glorify his end. When the columnists and advisors in the late 90s told us that a "new era", and that we should not worry about costly inventories, that was just to make the time.

Today, when we hear economists such as Samuelson announcing the "end" of inflation, it's time to worry. We have already felt the alignment of a number of factors that can lead to the re-emergence of inflation, but the fact that the apologists of government (economists) see the need to talk away only serves as a confirmation that the time is near . Inflation is not only apparently on the road, it's probably the door. The massive spending spree and the resulting dollar devaluation would surely lead us to that conclusion. We were expecting a certain degree of inflation for some time. But, when we start hearing of such defensive attitudes of those who do not want to hear the truth, well, it's time to start planning for it seriously.

In Samuelson's defense, his article focuses on the idea that markets have risen rapidly (since Reagan reduced inflation in 1982) due to the advantage of a lower inflation. Over the past 20 years He states that we will no longer benefit from this improvement. But his mistake is to think that things will now be "flat", and that inflation was a one-time event that will not be reviewed.

He shows a lack of political insight. As long as politicians can take advantage of the printing and publishing other people's money, we will see more inflation.
Of course, the fact that we anticipate inflation in the financial system does not mean that this will have all goods the same consequences. Certainly, our improved trade relations caused prices of some imported goods significantly. However, if the dollar drops in value, our ability will also be reduced, the import buy cheap and now, the prices of imported goods rise from their lows. Since these cheap imports are masking inflation for some time, this possibility the rate of adverse effects. Oil prices are a good example of this phenomenon. This kind of price increase is obviously uncomfortable, but is a natural consequence of the free-floating currency regime that we follow, and it's actually part of a sound mechanism for refocusing our efforts. It is not the price increases that should surprise us, and they themselves are not the problem. This is simply the result of a dollar is plummeting in value. We must realize that it is not the producers of goods to our harm, but the governments that run our currency into the ground. Ultimately, we expect to see prices rise on most goods, including both local products, as well as imports.

The result is important for investors. Rising prices will mean that your savings are worth less, and your retirement accounts to grow just to keep their value. It is many years since this nation has dealt with high inflation, and most of us have forgotten how to deal with it. Since Reagan, Volcker and Greenspan worked for Ford, and Nixon years, beat the wild inflation of the Carter, we have not had to deal with this devastating bugaboo, but today we need to plan for.

Besides the damage to our savings, inflation can make. Our debts less bothersome High inflation will push interest rates higher, however, so only borrowers with fixed rates will benefit. Others will likely experience rising interest rates on their credit cards and struggle to pay them. Never before in American history as much worn as much credit card debt in a period of high inflation. One would expect higher standard levels. Inflation will also increase housing prices without increasing value, and raise profit levels without increasing real assets. The result will be higher taxes and tougher competition. In the end, it will be a worse time for bonds, and as long as the stock will be a better place to be, will be high flying growth companies often disappoint. It is a wonderful time to think as a value investor.

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Scott Pearson is an investment advisor, writer, editor, instructor, and business leader. As President and Chief Investment Officer of Value View Financial Corp., he offers investment management services to a wide range of clients. His own newsletter, Investor's Value View, is distributed worldwide and provides general money tips and investment advice to readers both internationally and in the U.S.