Your Retirement Savings Won’t Be Enough…No Matter How Much You’ve Saved

Last week I told you about how this so called economic recovery we are in has been limited to the super wealthy. They are the only economic class that has fully recouped their losses sustained in the 2009 recession. Middle class Americans have actually been left worse off than they were before the recession hit us. Less income…less buying power…lower standard of living all of which has become the new normal for the majority of Americans.

But all of that is in the past. What about our nation’s future?

Today’s letter won’t be about the past, I don’t want to talk anymore about where we have been or the struggle that’s hounded most Americans for the past four years. Instead today I want to talk about our future and where this great country of ours is headed. Plus what you can do to profit from it.

The predictions about the state of our economy in the next five years are not all that rosy. In fact the gap between the wealthy elite and the poor will continue to widen, bringing down many of whom were formerly middle class Americans to a lower economic status. Over the past couple of months I have been shouting about the tough economic times I believe are directly ahead of us, even as the mass media proclaims that the end is near and the return to good times is nearly upon us.

Why do I make such a bold economic prediction? A little economic term called inflation.

Inflation is defined as the rise in price of goods and services over a period of time. It’s a word that no matter who utters it strikes fear in the heart of many Americans. Immediately images of rising prices, a bad economy, a falling dollar and an income that no longer has the purchasing power it once did comes to mind.

People who own any sort of fixed interest debt (i.e. bond holders) and those living off a fixed income (i.e. retirees) are generally those most affected by inflation. It’s also bad if you are a lender because the dollars you lend out are worth much less when you get them back.

At first glance you’d think everyone loses when inflation hits an economy. But that’s not true. There are some people who like inflation, in fact they hope for it.  You see for anyone holding onto a fixed rate loan inflation makes it easier for them to pay it back. The reason for this is that the debtor must repay a fixed amount but over time the value of the dollars they must repay is less and less (so they are easier to obtain than if the value of the dollar wasn’t inflated away).

Do you know who the biggest debtor is in America? The U.S. government.  Yes, dear, old Uncle Sam is trillions of dollars in debt. He would benefit greatly from inflation.

Very soon you’ll hear all about us reaching our ‘debt ceiling’. We have reached a critical point in our debt and it needs to be dealt with immediately. How does one quickly fix an insurmountable debt? Why they introduce inflation to take away the power of that debt.

And you tell me if this is a coincidence or not. The U.S. government is also the one who controls the money supply and thus the rate of inflation.

Whether President Obama admits it or not his administration would benefit greatly from increasing inflation here in the U.S. For a man that will undoubtedly need a job after his current term as president ends in three years, leaving the American people with a cleaned up image is paramount.

How would he do that? By eroding the power of the trillions of dollars of debt he left us with.

Don’t believe inflation has that much power? Just look to history. In 1923 inflation hit Germany like a ton of bricks. They experienced 29,500 percent inflation in less than a year’s time. That’s not a typo folks, prices literally rose twenty-nine thousand five hundred percent. If you had loaned a friend enough money to buy a car in January of 1923 and he/she repaid the debt in December of 1923 you might have been able to purchase a piece of bread with the money.  So if inflation can get you a car with just pocket change you can see how the current administration would benefit.

The same thing happened in Argentina in the 1980’s. By 1989 inflation soared to 12,000 percent. The peso became worthless and caused massive food shortages and rioting across the country. The effects of inflation can still be felt in Argentina today. If you want to buy a house there you have to do it with cash, they don’t make home loans in Argentina. You literally have to show up with a suitcase full of hundreds of thousands of dollars in order to close on a house there.

Granted these are two extreme cases, but it shows you the power that inflation has to turn a country on its head. I am convinced that we will experience inflationary levels between 30 and 300 percent over the course of the next twelve to thirty-six months. I hope I am wrong, but when you know that even the government is rooting for me to be right you start to wonder just what you can do to protect yourself against inflation.

Well the absolute worst thing you could do is stash away your cash in a savings account. Any money you put in there will become virtually worthless.

Now Wall Street will tell you that the best hedge against inflation is to invest in stocks. They’ll argue that when inflation hits it will raise the price of the goods and services that people buy. That same principle will raise the amount that these publicly traded companies make each year thus increasing their stock’s value. Basically when you double prices, you double profits and you double the value of the stocks. I’m not arguing with their logic I’m just not one to put all my eggs in one basket. I refuse to pour all my money into the stock market and hope like heck that all my investments go up. That goes against every investing principle I’ve ever been taught.

You’ve undoubtedly heard that gold is another way to keep pace with inflation. And it is. The problem is that gold only comes in certain denominations, basically you can’t get change for it when you use it to pay for something. So say inflation runs up the price for a bag of potatoes to $50. When you go to pay for that bag of potatoes at the store and hand the cashier a 1oz gold coin worth thousands she won’t be able to give you the change.

Here’s to your future (and mine)!

Mark Patricks


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