Inflation Ahead

 

Henry Thompson

 

Quantitative easing is increasing the money supply that will lead to inflation over the coming years.  The government prints money to cover its deficit.  Government debt exceeds national income and will grow with expanding public medical care and social security payments.  Inflation eases deficit crisis but decreases the purchasing power of cash.  After 10 years of 10% inflation, every dollar will be worth only 38 cents. 

 

The stock market collapse in 2009 was a correction to a speculative bubble generated by subsidized lending on houses.  Given normal economic returns starting in the 1950s stock prices fell to where they would have been without this bubble.  Real returns on investment generally are in the neighborhood of 2% to 3%.  Stock prices will have to rise to keep up with inflation.  Starting at 12,000 in 2012 the DJ average will have to reach 31,000 in 2022 to buy the same goods and services with 10% inflation over the decade!  New “milestones” for the DJ may only keep up with inflation.