Something Else To Worry About!

In The Great Recession Conspiracy, I argued that history (remember what we learn from history?) that when government's debt get too large, they almost invariably inflate the debt away.  Now I am getting some company.  This is a snippet from The Economist, February 25, 2012 under the title "Repressed Memories".  You will find it interesting and important for your own financial planning.

  "Even default by the world’s largest economy is no longer unthinkable. In a series of papers for the Mercatus Centre at George Mason University in Washington, DC, Jeffrey Rogers Hummel and Arnold Kling argue that the American government will eventually default, if only because politicians will never agree on a serious deficit-cutting programme."

We now borrow four dollars out of every ten dollars we spend.  Look at earlier posts for a graph that shows the exact effect that has on our national debt.

Then remember that none of the people who want to be president next term (Obama, Romney, Santorum, Paul) have anything like a creditable plan to reduce that spending rate, let alone reduce the debt.

Obama created the Simpson/Bowles Commission to find a way to do the job and immediately ignored their recommendations.  Can you remember any of their ideas?

Now Washington is telling us there is no significant inflation, but they use an odd measure that omits food and gasoline, so don't listen to the happy talk babble that comes from Washington.

If you don't know about them, you can buy Inflation Adjusted Bonds.  Vanguard, among others, has a group of them.  At the moment, the return is trivial, but the minute the real inflation numbers take off, you should consider rushing to buy as many as you can afford.

I lived through the last great bout of inflation and I am here to tell you, It Ain't Pretty!!