Inflation

Henry Thompson

 

Increased money supply by the Fed (Federal Reserve Bank) will accumulate leading to increasing inflation over the coming decades. The freshly created money will be how the government will make payments on its debt. Government deficits are already 10% of income with total debt exceeding national income. Taxpayer support for medical care and other expanding programs will increase government deficits.

 

Inflation will ease the debt payments. Every dollar of debt would be worth only 38 cents after 10 years of 10% inflation. Holders of the government bonds and dollars will be the losers due to inflation.

 

Private funds can be put into money market accounts to perhaps keep up with inflation. Stocks and real estate should be good investments. Stock prices depend on the particular industry. Real estate prices are hit and miss depending on location.

 

The recent stock market collapse was a correction to the speculative real estate bubble. Given normal economic returns and starting in the 1950s stock prices fell to where they would have been without the bubble. Real returns hover around 2%. Long term stocks stay ahead of inflation.

 

Stock prices will have to rise to keep up with inflation. Starting at 20,000 in 2020 the DJ average will have to reach 32,600 in 2030 just to keep pace with 5% inflation. Remember the heralded milestones for the stock averages may only keep up with inflation.