Don’t Worry About Inflation – Yet

By Al Thomas

Our brilliant strategists in Washington, particularly Ben Bernanke, are doing their best to create inflation. That is their solution to paying off the unpayable debt they have created.

China knows this and has slowed it’s pace of buying Treasury bonds. They realize we are a dubious creditor. They know our dollar is only strong in relation to all the other worthless fiat currencies of the world, but it is getting weaker.

You and I who live here must deal with their stupidity.

Bernanke considers himself to be an expert on the 1930s depression. Unfortunately his analysis is flawed.

There is a fundamental difference in the 1930s economy and our present economy. In the 30’s the US had no debt. Today we owe in the form of government bonds more than 13 Trillion. The interest is eating up most of his excess fake money.

Huge government spending is the cause of inflation ONLY if there is full employment. We are a long way from that now and it doesn’t look like there will be any improvement soon. Slow economic growth is forecast for years .

Why?

The federal, state and local governments are broke. Not all, just most of them. They need money. What do they do to solve this problem? They cut services that means laying off people and raise taxes. Every person unemployed means he isn’t paying taxes and takes from the government in various ways adding to the burden. Many of these folks find “underground” jobs that pay them and no taxes. Barter is another no-tax solution for the unemployed.

Every tax dollar takes from personal spending. This also slows inflation.

Bernanke is creating money out of thin air. It is called Quantitative Easing (QE). He is printing more and more worthless dollars, but they are not keeping up with the need to pay off the debt.

The solution to stopping the debt spiral is to stop spending more than we produce, but that is a painful solution that every politician won’t tell the voters. Pain means he won’t be re-elected.

The consumer has seen food prices increase for two reasons. Some due to more government regulations. Every regulation comes with a price tag. And there have been serious agricultural problems in the world – Russia, China, Brazil, US have had poor crops in various commodities.

As long as there is huge debt, over productive capacity, higher taxes and more regulations there cannot be any increase in employment. This sucks excess dollars up as fast was Washington can print. Until this deleveraging is complete (that may take years) there will not be a threat of hyperinflation.

For investors it also means another major break in the stock market. There is no stock that will be immune from the downside virus. Cash in the mattress will be the safest place.

That is one position your broker will never tell you.

CASH is a position.