Why is the media suddenly so concerned about inflation? A quick look into the Globe and Mail (a Canadian Newspaper) reveals several interesting articles...



...but why now. Could it be that people have finally realized that the unrest in places like Egypt, Syria, Iran, and Libya is caused not by a sudden lust for democracy but because of rising food prices and an inability of families to provide for the basic needs of their children?

Such events are not unheard of in recent history. Tiananmen Square in China was coincident with (and some say caused by) the very sort of food inflation they are seeing right now.

Of course, any divination of future events is speculative. As a result, looking back into history can often be helpful. A book I am currently reading is Adam Fergusson's "When Money Dies" which is about the hyperinflation in post WW1 Germany. This is an often cited example of the dangers of 'printed money'. Unfortunately, many people only give this portion of history lip service and then start yelling about buying gold. However, it is instructive to examine the difference in actions between those who were prepared for inflation and those who were not. I will reserve comment on this until I'm done the book. But would suggest the following...

We don't have to look to Weimar to see the effect of inflation on investments. The late 70's and early 80's will do. Look back at how that inflation was cured and ask yourself if you could endure those conditions. Specifically, can you afford 15-20% interest rates? Think about that... mortgage payments at the rate that most credit cards currently charge. Sure people claim that inflation causes debts to 'inflate away' but think about the way government works.

If consumer lenders are being squeezed, it doesn't take more than the stroke of a legislative pen to allow for extra 'service charges' or indexing debt to inflation.

Who has more power in Washington/Ottawa... individual voters or banks?

An alternative situation might be as follows... if you are a bank who engages in consumer lending and you see your loan book inflating away... do you loan more money out? You either charge more interest or you stop lending altogether (or worse call in the loans you have). In a nod to a conversation I had with StoxRok sometime ago, I suppose such a situation suggests that Inflation begats an eventual Deflation.

Anyhow, I'm rambling. I'll end this missive by outlining one of my own actions. In times of crisis people want safety. As for what you consider safe... I leave that up to you. Me? Moving down the risk curve is always a good idea. I still invest in junior miners, for example, but I do it with less money than before and with less speculative names. Even basic ideas like building a 'deep pantry' can always help and doesn't involve running for the hills... at least yet. As for the future a few more divinations...

"As the easy money ends, an uncharted road lies ahead"


"Where to invest in the wake of S&P's U.S. debt warning"



(As usual... comments are always welcome.)