Inflation

As June was winding down, a lead article in USA Today was talking about something that I have been talking about for months: inflation. Why are economists talking about soaring prices when the consumer price index has fallen in the last year? The answer is simple: debt. The federal government owes the world more than $11 trillion. That is $37,000 for every man, woman, and child in America. And in this next fiscal year, we will add nearly $2 trillion more to the national debt.

Some believe this will fuel runaway inflation. Marc Faber, editor of the Gloom & Doom Report, predicts that U.S. inflation will someday match Zimbabwe’s inflationary spiral. Others like David Wyss, chief economist for Standard & Poor’s believe you won’t get inflation until the economy gets back and that could be five years from now.

In my new book, Making the Most of Your Money in Tough Times, I talk about these massive debts and unfunded entitlements that prudent individuals and families need to consider. The federal government is trillions of dollars in debt and needs to borrow $15 billion each day just to fund the deficit. There will be a price to pay for all of this borrowing, and an even greater price to pay if we begin to print money.

A burst of inflation would lead to higher interest rates. The Federal Reserve usually raises short-term interest rates to cool off the economy and tamp down inflation. These higher interest rates would also affect bonds, as bond traders would demand high bond yields.

Another impact of inflation would be the devalued dollar. While this might make U.S. exports more attractive, it also makes imported goods more expensive. It is even possible that a significantly devalued dollar would lose it privileged place as a world currency.

Sure the Federal Reserve has some tools to contain inflation. But the Fed doesn’t have control of federal spending, and that could bring on inflation. So be prepared. I’m Kerby Anderson, and that’s my point of view.