Inflation!

   Inflation has been on my mind as of late. Some guys like to think about sports, others about hooking up with hot chicks. Me, I like thinking about personal finances and how macro economic trends will effect my family's household. Currently, my concern is inflation. My wife and I are thinking about buying a rental property or new home in a year or so. Part of the reason for this is because we both see inflation coming in a big way and want to assume as much debt as possible before interest rates rise. This is because as interest rates rise, our purchasing power on borrowed money becomes increasingly more limited. Additionally, and more importantly, as interest rates and inflation increase, your real wages and income decline. However, if we assume a bunch of debt at low rates, we save money in the long run compared to higher interest rate loans, and the effect of inflation makes it "cheaper" in essence to repay any debt. For example, if we borrow ten dollars to buy a house, but the real value of the dollar drops by 50% because of inflation, then we really would only be paying $5 dollars to pay off the debt.
  I personally believe that our federal government has this in mind as our national deficit has skyrocketed in recent years. To repay all of our national debt, taxes would need to be raised and benefits (such as social security and medicare) would have to be drastically cut to even balance the current budget before we could even think about having a yearly surplus to begin paying back our debts. The second option is defaulting on our loans which would be a financial catastrophe that would wipe out trillions of dollars of wealth over night. The third option, is  to keep borrowing as much as we can and continue printing the dollars as fast as we can. Eventually, the value of the dollar drops and you start paying back debt for a fraction of the current price.
   We can kind of see this already in place as the President has said in numerous speeches that he wants manufacturing in the United States to compete with foreign markets. The way to do this is to manage the value of your currency to make it cheaper for other countries to purchase goods from us than produce it at home or from a competitor. So as our debt has skyrocketed and the dollar has dropped, the manufacturing sector has begun to pick back up again. While there are many other factors, this is the general gist.
   With QE2 (second round of quantitative easing the Federal Reserve has employed by buying US treasuries to keep interest rates low and to allow for more lending between families and banks to encourage spending and stimulate the economy) coming to an end in June and the unpopular thought of QE3 still a possibility, I see inflation being out of control no matter what the government does. If you stop with QE2, interest rates rise as the depressed rates are surrendered with the lack of Fed purchasing. As it becomes more expensive to borrow money, companies will pass this cost along to consumers by charging more on goods they sell, and families will be hit with higher interest rates to borrow money to buy a house or car or loans for education. If QE3 happens, other nationalities start losing faith in the US to control their spending and begin to worry about possible credit worthiness as the national debt continues to soar. With this comes an increase in interest rates (ironically, exactly what QE3 would be trying to avoid) as other buyers of US debt will demand higher interest rates to justify taking on our "riskier" debt. Buyers of our debt will want more "reward" for the risk they assume.
    As rates rise and inflation kicks in, the value of the dollar drops and goods you buy, from gas to bread to coffee or clothes all begin to rise. End result, inflation. And when it starts it starts to spin out of control as the government begins to try and counter with short sighted market manipulating moves. Inflation!!!! Its coming. So look to invest in land on borrowed money. Buy commodity stocks, gold and silver. And buy an extra tub of coffee when you go to the grocery store before it becomes too expensive. Even if all these fears of inflation pass, you sure as hell will be glad you did when society collapses from an impending zombie attack.

Sincerely,

Coco