Understand Inflation – Your Nest Egg Survival may depend on it

After I found this video of a guy asking people to sign a petition to “increase inflation to 100% to purposely cause hyperinflation, it became obvious most people don’t understand the harm it can do.

Whether it is laziness, indifference or stupidity, failure to understand the danger of inflation could result in inflation seriously destroy your nest egg.

Government’s around the world use inflation to pay down debt with devaluing currency and in effect defraud the creditors of the full amount they are entitled to.

Governments have done it for years and not one is called to account for this fraud.

The real problem  for you is that inflation destroys the value of your nest egg over time too.

For years now most world governments have had a policy of keeping inflation around 3% and manipulated the amount if money in the economy to achieve that. They fear deflation and seem to believe an inflation rate of 3% is a safe margin.

I understand this was set  because they wanted to stimulate the economy enough to ward off deflation and encourage growth.

But the problem for Baby Boomers in retirement is that it in effect devalues the capital in your Nest Egg by 3% a year even if you do nothing with that money.

Now we have the potential for a significant rise in inflation because the US FED alone has doubled the amount of money in the economy to “prop up the economy and save jobs”. The rest of the developed world has followed suit.

In actual fact all that money has really done has prop up the banks, help them re-capitalize and allowed them to use a significant portion of that money to speculate on the stock market. The rest they have been able to return  to the FED and receive interest from the FED on money they have borrowed from the FED or got from the tax payers.

Ben Bernanke “Time Person of the Year” has dropped over a trillion dollars from his helicopter onto the banks. The banks are not lending it out so that money is not finding its way into the economy.

Until it does inflation will be low. When the banks start lending again the price of goods and services will start to increase to absorb that trillion dollars. That will cause consumer price inflation.

What you need to do is have a plan for when that occurs. Inflation is like a dam breaking. Initially there is a crack in the wall then as water pores through, the crack gets bigger. Bernanke is right about controlling inflation up to this point. But…

At some point a whole section of the dam wall will fall away and a huge torrent of water will flow. Bernanke will then have a tough decision to make – The Volcker Inflation Fix or just let inflation run away.

It’s tough because if he applies the Volcker fix he will cause a lot of hardship as he puts the breaks on the economy and withdraws all the excess money. It also means the massive US debt will not be inflated away as most governments try to do these days with not ethics or integrity.

I believe the Keynesian disease will prevent him from taking the tough economic decisions and he will chose the easy political one of do nothing.

At some point though there will be a day of reckoning if they are to prevent hyperinflation which may occur.

You need to understand inflation and what it really is and how you can be fooled by government and FED-speak. Once you know you should be able to find investments that can help protect your nest egg.

The problem is you have to do this BEFORE inflation is in the economy. Once the Dam breaks you won’t be able to save your nest egg from the ravages of fast rising inflation.

I suggest you start by reading this quick and dirty analysis, “Understanding Inflation” of inflation and what it is and what it is not.

This site, Rethink Your Defence is also good. It is a PIMCO site. The article, “Inflation and It’s Impact on Investments” makes good reading.

One last thing. Here is a great tool for managing your nest egg and risk. The Balancezone blog has an article on using the Balancezone software to manage your portfolio. The topic is “Keep More Cash? What About Inflation?”. It gives you yet another perspective on the inflation disease.

Inflation along with nationalised health care, deficit spending, redistribution of wealth, climate change, IMF loans, Keynesian economics all contribute to destroy your nest egg. Hopefully being informed can help minimise the damage and with luck allow you to take advantage of all this stupidity.

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