The inflation scenario is something I’ve been worrying about for a while. Nobody is really talking about it, but I expect it will be big news in future.
I don’t expect hyperinflation a la Bob Mugabe, but I do expect double figures in the medium term. Inflation is one way to deal with our massive debts (inflation reduces the real value of debt). Most governments, including UK and Spain, are too spineless to go down the other road, which is spend less and tax more.
And let’s face it, nobody has a bigger interest in a dose of high inflation that eats away debt than our governments, who are borrowing like there is no tomorrow, literally. “Inflation is always and everywhere a monetary phenomenon,” said Friedman. Well, our central banks are furiously printing money (they dress it up with fancy names like ‘quantitative easing’) and unless you trust the shower that lead us not to screw it up big time, then you should be expecting high inflation down the line. I do. And never forget, inflation is a sort of tax on savings. Politicians just love to get their hands on your savings.
And what should do you do if you expect high inflation? Get into hard assets like commodities and property (and gold, of course). Cash in the bank will just evaporate.
That said, I’m not suggesting you should start buying up flats in forlorn developments on the Spanish coast. I think you can do better than that. But I wouldn’t rule out the possibility that, in 5 years time, your cash might be better off even in one of those forlorn developments than in the bank. Crazy world we live in.
there is a nice article which argues against the inflationary scenario:
“the solution to today’s fiscal crisis is the same as it has always been: to cut spending, reduce the deficit and learn to live within our means.”