This clip from Ron Paul ran on Fox news on 14th October.
We can’t start rolling the printing presses to make money to fix this problem. Although the issue is huge it can still be distilled into simple principles. If the US’s production is worth in total, say $1000 and to ‘fix’ the given problem, the government prints and pumps into the system another $1000, that does not mean we have an economy worth $2000. They are still only worth their original value of $1000, but now, in the system, we have 2000 dollar bills, which means that each dollar is now worth only 50 cents in terms of its buying power. Of course the same is true of the pound, the Euro or indeed any other currency you care to mention. Ron Paul knows this but he represents it as a mistake by Government. Sadly it’s no mistake. The Government know what it’s doing here and that is that it’s inflating the huge debt away. The Governments are happy to float the straw man argument that we’re all headed for deflation but look again at whats happening. The presses are printing. Governments globally are flooding the market with loose money and we’re in for one hell of an inflationary ride. The buying power of our cash is going to collapse. If you have a pension fund that you’re banking on to fund your retirement in 10, 20, 30 years you might like to reassess what its likely buying power is going to be like once it’s value is inflated away. My view, and this is subject to change as I assess and reassess is that we’re in for a short deflationary period followed by a once in a lifetime inflationary armageddon.
Doom-mongering done we need to consider how we can profit from this because as sure as cats are cats there will be some winners. We’re not though going to be winners by doing nothing, nor will we win by following the crowd into asset classes that barely keep pace with inflation. I’ve been giving this a lot of thought for a long time now and although my timing could have been better I’ve been out of shares for many months.
Cash is one option. To many people the notion of cash as an investment may sound weired. Fund managers and financial commentators will be advocating diversification. They recommend having assets spread out into numerous different stocks, funds and markets but is this strategy right. No, its flawed for the following reason. For many years investment assets have typically risen. They’ve been rising year on year for years, but the future is another matter. In the short term if we get deflation holding a diversified portfolio will prove to be a poor decision. The whole portfolio will decline in value and as investors panic to exit there will be a further slide in value. This is true for all assets except one: Cash.
Of course, once the deflationary tide turns and we’re once again pummelled by inflation and cash will start to lose its value. So what then? I’ve some ideas but it’s too soon to make that call. My first job it to protect what I have.
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