The Impetus for Rising Asset Prices Longer-Term
While it’s sensible to witness the ballooning debt load of one’s own over-spending nation and expect an unpleasant conclusion, it isn’t reasonable to presume the process will necessarily mimic The Great Depression of the early 20’TH century. Historically, the financial demise of fiscally irresponsible countries has come in the form of deflation, which Argentina has frequently demonstrated, or inflation, which most recently Zimbabwe graciously illustrated. While it seems broadly understood the U.S. government’s relentless over-spending must culminate in a restructuring of the financial system, it appears little perceived the chosen venue by both the government and central bank is inflation.
Deflation essentially consists of borrowing every dollar any fool will lend you, stiffing your creditors, and then enduring the awful consequences of trade abandonment, job scarcity, high unemployment, broad demand reduction, decreasing prices, and a hoarding of cash and currency. Think of it as an honest default. Inflation, defined as “an arbitrary increase in the volume of currency at a rate exceeding annual economic output”, is a dishonest default few can perceive. Picture a person handing you a $10 bill while removing a $20 from your back pocket. Inflation is a lining of the national highway of fiscal hari-kari with numerous, pleasant distractions, the greatest of which is the appearance of wealth. Consider how the scheme works, and you will know how best to conduct yourself.
When a fiscally reckless government becomes overly indebted, it can honestly cut spending, which is deflationary, or it can dishonestly monetize its debt by increasing spending and fund it with a combination of money-printing and interest rate suppression. New names don’t change old behaviors; these are the only options. Understand that sufficient currency will be fabricated to continue inflating America’s debt bubble, and that rates will be allowed to rise only enough to convince most people that containing inflation is a priority, and you’ll see how critical it is to do the following things:
Own assets that appreciate in an inflationary environment, like real estate, stocks, natural resources, and hard assets.
Prioritize income-producing investments, as inflation places a premium on present dollars while devaluing future dollars.
Focus on quality, as speculative frenzies will be periodically sifted, like in 2022. In stock ownership, this means capital efficient businesses with large free cash flow; in bond ownership, it means not lending to heavily indebted entities.
Maintain a long-term mindset with investment holdings. Deflation is decisive, but inflation takes time. America may dominate the world in a highly inflationary environment for many more years. Only when the currency is widely rejected will the inflation scheme unravel, and there is no viable replacement on the horizon today for the U.S. dollar.
Remember chronic inflation always destroys cash savers and pensioners first. Stay productive as long as possible. Avoid idle cash savings. Understand it’s not that assets are suddenly appreciating faster, but that the currency is losing value more precipitously!
Most importantly, be thankful for the blessings you have and be generous with those in need as you celebrate Christmas this year, Shaun.
“For to us a child is born, to us a son is given; and the government shall be on his shoulder, and his name shall be called Wonderful Counselor, Mighty God, Everlasting Father, Prince of Peace.” ~Isaiah 9:6
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