Buckle your seatbelts: Inflation ahead
Quantitative easing is increasing the money supply that will accumulate and lead to high inflation over the coming years. The government is printing money to cover its growing deficit. Government debt exceeds income and will continue to grow with expanding public medical care. Social security payments are will add to the deficit and debt. Inflation will ease the debt crisis but lead to decreased purchasing power of cash. Every dollar will be worth only 38 cents after 10 years of 10% inflation. The recent stock market collapse was a correction to a speculative real estate bubble generated by government housing policy. Given normal economic returns starting in the 1950s stock prices fell to where they should have been without the bubble. Real returns on investment are about 2% to 3% in developed countries. Stock prices will have to rise annually 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 not keep up with inflation.