The American Age of Inflation is Over

"The American Age of Inflation is finished." So says economist Robert Samuelson in his December 2nd Washington Post column.

This type of refrain is common. We often hear that this or that is ended ? 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 '90's declarations of the end of value investing, and the meaninglessness of p/e ratios, and the (can you believe it?) end of bear markets. Such drivel is what houses of cards are built on.

It is, in fact, just such declarations that should alert us to the impending disaster that awaits. The easiest way to know when a trend or characteristic may be on the horizon is the cacophony of pundits extolling its end. When the columnists and advisors in the late '90's told us that it was a "new era", and that we needn't worry about overpriced stocks, that was precisely the time to worry.

Today, when we hear economists like Samuelson announcing the "end" of inflation, it is again time to worry. We already sensed the alignment of a variety of factors that could lead toward the re-emergence of inflation, but the fact that apologists for government policy (economists) see the need to talk it away only serves as confirmation that the time is at hand. Inflation is apparently not only on the way, it is probably at our doorstep. The massive spending spree and resulting dollar devaluation should lead us to that conclusion anyway. We've been expecting some level of inflation for some time. But, when we start hearing such defensive postures from those who don't want to hear the truth, well, its time to begin planning for it more seriously.

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

He displays a lack of political understanding. As long as politicians can benefit from printing and spending other people's money, we'll see more inflation. Of course, the fact that we anticipate inflation in the financial system does not mean that this will affect all goods equally. Certainly, our enhanced trade relations have caused prices of some imported goods to drop significantly. However, as the dollar drops in value, our ability to buy imports cheaply will also be reduced, and already, prices of imported goods are rising from their lows. Since these cheap imports have been masking inflation for some time, this eventuality will speed the negative impact. Oil prices are a prime example of this phenomenon. This kind of price increase is naturally uncomfortable, but is a natural result of the free-floating currency regime we follow, and it is actually part of a healthy mechanism for refocusing our efforts. It isn't the price increases that should surprise us, and they themselves are not the problem. This is simply the result of a dollar that is plummeting in value. We need to realize that it is not the producers of goods that are doing us harm, but the governments who run our currency into the ground. Eventually, we may expect to see prices rising on most goods, including both those produced locally, as well as imports.

The result is important for investors. Rising price levels will mean your savings are worth less, and your retirement accounts must grow just to hold their value. It has been 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 to defeat the wild inflation of the Carter, Ford, and Nixon years, we haven't had to deal with this devastating bugaboo, but today we should plan for it.

In addition to damaging 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 probably experience rising interest rates on their credit cards and struggle to pay them off. Never before in U.S. history have so many carried so much credit card debt in a period of high inflation. One might expect higher default levels. Inflation will also boost home prices without increasing value, and uplift profit levels without growing real assets. The outcome will be higher taxes and tougher competition. In the end, it will be a worse time for bonds, and while stocks will be a better place to be, high-flying growth companies will often disappoint. It is a wonderful time to think like a value investor.

To send comments about this article or to learn more about Scott Pearson's Investment Management Services, visit http://www.valueview.net

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 variety 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.

---

How to Terror-Proof Your Money

"To drift is to be in hell, to be in... Read More

Wit and Wisdom on Money, Wall Street and Success - Part #2

Here are ten more WISDOM packed GEMS that ooffer very... Read More

Looking For a Safe Investment? Try a Certificate of Deposit

If you are looking for a safe investment and you... Read More

Shop More, Save More for College Gimmick or Reality?

The man sat in a chair beside a dressing room... Read More

Raising Capital in Today?s ?New Economy?

We've helped a number of clients develop business plans and... Read More

When Its Too Late to Save for Retirement

You are 55 years old (or somewhere around there) and... Read More

Annuity Investment Guide

While there is not a lack of information on annuities,... Read More

Foreign Investing - US Investors Still Missing Out?

Investors are still too slowly realizing what the academics have... Read More

Can Your Annuity Do This?

Okay, so I can tell you I have sat in... Read More

Planning for Retirement

Almost without exception, people don't start planning for their retirement... Read More

Online Trading Options Strategies - Rolling

Rolling is defined in options online trading as moving a... Read More

What If You Absolutely Positively Could Not Lose - Would You Play the Stock Market?

Seniors on fixed incomes face a unique problem. Where do... Read More

Wit and Wisdom on Money, Wall Street and Success - Part #4

Can you concisely summarize your investment philosophy in a few... Read More

Annuity Investment - The Whole Truth

Do you ever feel like you haven't been told the... Read More

Invest To Make Money, Not To Get Rich

The technology boom of the '90s romanticized the "rags-to-riches" ideal... Read More

The Key Ingredient To Increase Preconstruction Profits By Over $20,000

One of the greatest preconstruction investing issues that I hear... Read More

The Demise of Buy & Hold

Based on consistent results I think Buy & Hold should... Read More

Creating Wealth by Gearing Up

Gearing is where you borrow money to invest. As already... Read More

Retirement ? Its Sooner Than You Think!! (Honestly)

Many people hear "retirement" and think- what? 401K? Roth vs.... Read More

Why You Need To Buy and Sell Gold Coins (Part 2)

How to Collect Rare Coins For Fun and ProfitTime has... Read More

Can Your Annuity Do This?

Many people buy annuities according to their agent's recommendations. However,... Read More

Investing In or Owning Drug Lab Properties

Clean Up (includes the insides and the outside of a... Read More

Useful Tips on Investing

Here are some useful tips on investing. When you make... Read More

Issuing Warrants to Investors

When raising capital for a business venture, warrants are a... Read More

Success Trading: More Basic Terminology for New Traders

One important aspect of trading the markets is to understand... Read More

How to Buy to Let

Find out everything you need to know about buy to... Read More

Maniac Investment

Let's first understand what maniac means. According to Webster a... Read More

Stock Market Retirement Investment Plan

For a successful retirement investment plan to work in the... Read More

Investing in Car Dealerships: Doing Your Homework

This article attempts to help give the investor a broader... Read More

IF - The Wonders of Investing

If it seems... Read More

Investing: Do You Want To Make Money, Or Would You Rather Fool Around?

It always amazes me how much stock market investors resemble... Read More

The Benefits of Laddering Your CD Investments

If you've decided to stock some money away in a... Read More

Trading Tips No 3: Online Trading and Investing: Buy, Hold, and Hope

So you have learned how to trade the markets by... Read More