If you are confused about what is happening on the deflation/inflation front join the crowd. I have created two new words to add to the confusion, Indeflation and Deinflation. to help confuse you even further.

Bernanke/Geithner have stated they are more concerned about deflation. In fact Bernanke claims he can inflate the economy anytime he gets in his helicopter and throws money out for us all to spend. Quote from the Special Report on Hyperinflation at the Shadowstats.com web site.

“Attempting to counter concerns of another Great Depression-style deflation, Bernanke explained in his remarks: “I am confident that the Fed would take whatever means necessary to prevent significant deflation in the United States …”

Aside from minor average annual price level declines in 1944 and 1955, the United States has not seen a deflationary period in consumer prices since before World War II. The reason for this is the same as to why there has not been a formal depression since before World War II:”

Mr Volcker solved the 1970’s inflation by killing the economy and then resuscitating it. it worked but I’m not sure at what cost.

It seems deflation is very dangerous if there is a lot of debt around. That’s because the assets to which that debt is attached is decreasing in value and the debt is not.

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I’m reading a book by Kevin Phillips called, ” Bad Money“. It is about how the US economy became hijacked by exotic financial instruments and financial services which robbed the public of their investment returns and destroyed the world economy.

One thing he covers is the CPI and how the US Government manipulates it to “fool” the public that it is much lower than it really is.

It seems to me that inflation will destroy much of your nest egg in the coming years as we get ourselves out of this financial mess, unless you learn to protect yourself from its affect.

This is almost as important as Rule #1 - Avoid Large Losses in Retirement.

The US Government will continue to print money if it cannot borrow it in order to maintain its massive spending, I mean stimulus program.

You need to have an objective source of information on inflation or any plans you make will be flawed as the dollar in your nest egg drops in value.

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The question on many baby boomers lips is, “when will I get my nest egg back?” This is a perfectly reasonable question given that most stock markets have fallen almost 50% since their highs in November 2007.

Your friendly financial planner will tell you they have managed to protect your nest egg from the excesses of the market down turn because the average fund is down only 20%. But what does this really mean?

If you had a “balanced portfolio” then it is likely that 70% of your money was in equities. So taking a $1M portfolio, $700K was invested in risk based assets.

The market was down 50% from its peak so that $700K is down by half to $350K.

Now by my reckoning the $1M portfolio is now reduced to $350K + $300K which means there is only $650K left. So how come it is down 35% vs. the reported fund average of 20%?

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It’s coming! Inflation that is. It will be here as soon as the governments realize just how much money they have spent fighting the recession and how much of a financial burden they are placing on our children and grand-children.

The only way to pay the debt is to devalue the currency maybe 80% or more in order to pay it down.

If you are a cashed up baby boomer hoping to sit this recession out you may be in for a shock. With another $1 Trillion dollar stimulus planned by President-Elect Obama, the US and the world is going to be awash with US Dollar bills.

Remember inflation results in wealth redistribution. Didn’t we hear the term “wealth distribution” many times during the Presidential Campaign? It was mention with respect to taxing the rich and giving to the poor. “Joe the Plumber” asked the obvious question and was almost hanged, drawn and quartered for doing so.

Without getting into a political debate here it now looks like Obama will not raise taxes in the short term as everyone is telling him it is suicide to do so in a recession. Read the rest of this entry »