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Investing and Inflation

Real Estate Agent with Alliance Properties

I have heard many economist lately predict that we are heading straight into a period of extreme inflation. Last night I heard a college professor claim that "elites" are trying to crash the US dollar on purpose to switch the entire globe to one global currency. They plan to accomplish this by forcing high inflation on the people, which will cause civil unrest and lead to a chain of events. Who knows if this is true, but it got me to thinking. Then, a friend of mine on Facebook posted this photo, which seems disturbing to me after listening to economist, and trying to help people with refiancing their homes.

I try to pay attention to all sides of political debates and the one thing thgas prices scarry?at strikes me about this particular line of thinking is that it seems to be the same on all sides. Conservatives, liberals, and moderates all seem to share this "fear of certain inflation" based on how insolent the US debt load seems to be, and also based on the weirdness with China's trade practices and tendency to buy our debt.

I do think we are already seeing inflation, but I am not sure that it is due to the factors the specialists claim. However, I am definitely NOT an economic specialist. But, the price of fuel, pet foods and animal feeds, grains, paper goods and home goods have gone up a considerable amount just since the new year. I have decided that there are certain things that I am going to do to protect my family.

I am in the process of withdrawing money from my 401k accounts and teacher retirement pensions that I have. The reason is that I really do not trust the banks or state with this much of my money any more. If we are going to experience that kind of inflation, I need another plan. If the banks can blow it on the mortgage front, the can blow it on other issues, too. Too many banks are failing. And, trusting the state of Texas with my pension...they have eyes on the TRS monies, and once they start to tap into it, it will start the long chain of events.

So, what am I going to do with this money you ask? BUY REAL ESTATE. The real estate market is depressed right now, and it is a great buyers market. But if this inflation does kick in, real estate values will also become inflated. The real estate will increase in value again. Even if we do not see rampid inflation, over the long term, real estate seems to be one of the best investment options with the best returns. When I look at my parent's investment portfolios and histories it is clear that the best investments with the best returns for them was to have some rental properties.

I only five years I can recoup my money paid toward a new rental. After five years, it is profit. Even if a property sits idle for a few years, (God FORBID!), idealistically it's re-sale value will still eventually increase since prices are so depressed right now. Another factor that led us to this decision is the huge shortage of rental properties available right now in all price points. Because so many people are having problems qualifying for a mortgage, they are turning to leasing.

Because we own a farm, and have several deep-freezers full of meat, and a network of gardener friends, I am not too worried about stockpiling food. I guess that is something we already do. It was pointed out to me this week, however, that there are some things that we have already seen big price increase and I will stock up on these. Mainly, toilet paper. I can live without a lot of stuff, but I don't want to live without that! I also don't want to pay $5/a roll.

If you are worried about this, too,  and you are interested in re-investing money and are considering real estate, I'd be happy to help you figure it out. It is a learning process that I have already been through. I already own several very profitable properties. I have learned the ropes. As a school teacher for many years, I'd be happy to share what I have learned from the rental business with you and help set you up. I just set up a friend last week and got her house leased out for her.

Just give me a call, text or email, or even Facebook message. I'd be happy to chat with you about this!

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Rose King
David Tracy Real Estate - Friendswood, TX
Friendswood / Pearland / Houston Bay Area

Hi Amy! Really funny picture! I think you are right on the money with your plan. We have been trying to keep the gas tanks full, and keep essential items on hand for emergencies as well. You are lucky to have a farm. That is something we are looking in to. Great post!

Mar 01, 2011 03:59 AM
Mike Saunders
Retired - Athens, GA

Amy - yet the administration is doing their best to make sure that real estate does not appreciate either. When people are forced out of the market because of the new rules, and, the potential shutting down of Fannie/Freddie, there will be less demand. And, if the M.I.D. goes away.........

Mar 01, 2011 05:54 AM
William Feela
Realtor, Whispering Pines Realty 651-674-5999 No.

Not a bad idea.  I have already done what you are now doing. I did all I could do for the long term about a year ago.

Mar 01, 2011 07:22 AM
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

Real Estate is a great long term investment ! Buy Low sell High !!!!!!!!!!!!!

Mar 01, 2011 08:17 AM
Paul Walker
Equity Fifty Five Realty, LLC - Scott AFB, IL
Scott AFB IL Area Realtor

Inflation is here folks, food prices and fuel is certainly shooting up. Forget looking at the CPI index, look at gold and silver markets. We have let our politicians prove that free markets and capitalism doesn't work. Of course it is because of dishonesty, fraud, "social security", too many entitlements, and the list grows on. Back under Nixon we was taken off of the gold standard, now the government is printing (debasing) money (which really has no value anyway since it has no standard)

Please read this great article about the coming inflation!

Higher Inflation is on the Way

Charles Kadlec
Reported inflation is headed higher - much higher.

The stakes have seldom been higher. With the unemployment rate still above 9%, and federal debt at record levels, this latest error by the monetary authorities is likely to be the most costly since the Great Inflation of the 1970s. Monetary instability will slow employment growth and further erode confidence in government at the same time that higher interest rates will add billions of dollars to the interest cost on the national debt. Yet, failure to act in a timely basis will lead to an even greater crisis.

When it arrives, the Federal Reserve and its defenders will call it "cost-push" inflation and blame it on economic growth, the weather, Arab sheiks, China, and perhaps greedy companies and labor unions.

The actual cause of the looming crisis is the same as the cause of the Great Inflation of the 1970's: a too easy monetary policy that has devalued the dollar by 40% against gold during the past two years.

I choose gold as the reference point for the dollar's value because it has the remarkable characteristic of maintaining its buying power in terms of other goods and services over long periods of time. As a consequence, the dollar price of gold is the best, though imprecise, real-time measure of the price level. Other, more traditional measures, such as the consumer price index (CPI) are merely lagging indicators of inflation or deflation that has occurred already.

I also choose gold because I remember what happened after President Richard Nixon in August 1971 severed the link between the dollar and gold. At the time, those who warned that the rising price of gold was signaling higher inflation ahead were widely dismissed as "gold bugs." The conventional wisdom then, as now, is that economic slack would protect the U.S. economy from inflation regardless of what happened to the value of the dollar in terms of gold.

But it didn't work out that way.

At first, the conventional wisdom seemed to hold. The rate of inflation as represented by the CPI slowed in 1972 to 3.2% from 4.3% in part because of wage and price controls, and then rose 5.6% in 1973. But, in 1974, the CPI jumped 12.2% in the face of rising unemployment. Shocked and dismayed, the purveyors of conventional wisdom made the circular argument that the unexpected rise in the overall price level was caused by the rise in commodity prices, especially the tripling of the price of oil. In other words, they blamed rising prices on ... rising prices!

But, those who followed the price of gold were not shocked. For example, the sudden tripling in the price of oil between 1971 and 1974 roughly matched the tripling in the price of gold over the same time period. In other words, the rise in the price of oil was simply the mirror image of the preceding devaluation of the dollar against gold.

In the last two years, the price of gold has increased around 75% - roughly half the increase of 1972 and 1973. Last week's inflation reports indicate that this devaluation of the dollar will hit the CPI in the year ahead just as it did in 1974.

The price of crude materials in the Producer Price Index (PPI) increased by 3.3% in January alone and now stands 21% above where it was just six months ago. Moreover, during the three months ending January, the rate of advance in the producer price indices for intermediate products, and finished goods have all accelerated into double digit annual rates of advance.

This upward adjustment of prices to the cheaper dollar is beginning to flow through to the consumer. For the past 3 months, the seasonally adjusted annualized rate of advance in the CPI is up to 3.9%, with food and energy prices - the items that have the greatest short-term impact on a family's budget - accelerating to 3.1% and 27% over the same 3 months. Given the relative magnitudes of the dollar's devaluation against gold, it is reasonable to expect consumer prices to be rising at a 5% plus annualized rate in the months ahead.

Fed Chairman Ben Bernanke's assurance during last December's interview on 60 Minutes that he was "100% certain" the Fed could control an outbreak of inflation above 2% was hubris. These data show that inflation has already broken out, and that there is little the Fed can do to stop the price indices from reflecting the dollar's devaluation of the past two years. And, his statement last Friday in Paris at a meeting of the finance leaders of the Group of 20 that "resurgent demand in the emerging markets has contributed significantly to the sharp run-up in global commodity prices" ignores the central role of the dollar's devaluation on rising global inflation.

Moreover, Bernanke's promise to respond to higher inflation by raising the Fed Funds rate carries with it significant additional risks. Slowing the economy reduces the supply of goods and services relative to the supply of money, which itself can be inflationary. In addition, higher short-term interest rates increase the opportunity cost of holding currency and checking accounts, and therefore will lead to an increase in the turnover or velocity of money. That too will add upward pressure to prices.

The experience of the 1970s illustrates the danger. The Fed raised the Fed Funds rate from a low of 3.3% in February 1972 to more than 10% in July 1973. But consumer price inflation continued to accelerate for the next year.

To avoid another extended period of high inflation and interest rates, the Fed and the Obama Administration need to acknowledge that the current, paper dollar system is deeply flawed and prone to error and instability. The alternative is a rules-based system in which the Fed begins to use quantitative tightening and easing to steady the value of the dollar as represented by the price of gold. A monetary system in which the dollar is as good as gold - for all of its imperfections - would quickly deliver price stability, low and stable interest rates, and increased financial security to the American people.


Charles Kadlec

Mar 01, 2011 08:19 AM
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

Real estate and precious metals seem to be the way to go right now.  Having money in cash is risky.  Despite what the government says, we are seeing tons of inflation.  The government doesn't count food or energy prices in inflation even though they are a huge driver on everything else.

Mar 01, 2011 10:52 AM
Amy Law
Alliance Properties - Crosby, TX

Wow. Thanks for all of the great comments! I just base my worries about inflation on watching the price of 4 items at the stores:

1. chicken feed. It is a variety of grains and materials. It is through the roof right now. Chickens must eat some feed, even if they are field grown. This will be passed on to people that buy eggs and chicken meat.

2. Toilet Paper. We have a paper mill about 10 miles from here that sits idle. No profit in making paper anymore due to the govt regulations. The price of toilet paper has tripled in the past 2 years. But, everyone needs to buy toilet paper. This is a cost increase that we will all "feel".

3. Oil/diesel. Wholesale prices. We buy agricultural diesel by 1000 gallon lots for our tractors and farm trucks. We know how the price of diesel effects the price of anything that needs to be delivered.

4. Ice Cream. It is a frill product, and frill products are the first products that see price increases. The price of a 1/2 gallon of Blue Bell ice cream is up to $7!!!! 3 years ago one could purchase 2-half gallons of Blue Bell for $5. This price increase is where the real price of milk is passed onto consumers. Milk at $3/gallon is not fair to dairy farmers. It is for SURE not the TRUE price of milk. Most stores price milk at a loss to bring shoppers in, and government all provides subsidies. I am worried that milk will become a luxury very soon. (good thing we have Betsy the dairy cow, who is due to drop her calf any day!)

It seems the media is lying about the true inflation that we are experiencing. I think this is because they are saying exactly what our current administration wants them to say. I also think many people are buying the lies. However, the vise has been tightened so tight, between job losses, pay cuts, and higher prices goods.

I personally do not think that now is a good time to buy metals. They are priced too high. Buy low, sell high. Now is a great time to sell metals, but not buy. What I already see a lot of is under-the-table bartering for goods. People are trying to find ways to bypass the currancy system. So, if you really want to invest in something, buy large quanitites of wheat or corn that you can trade for other goods with local farmers.

Mar 01, 2011 01:10 PM
Dale Terry
Yadkinville, NC

Can't say I disagree, although I will wait a little longer before I jump in the market.  It may still drop another few percentage points, or we will go into a double dip and prices will drop by 10 percent or more.

Mar 02, 2011 03:06 AM
Mike Frazier
Carousel Realty of Dyer County - Dyersburg, TN
Northwest Tennessee Realtor

Amy, I believe you are headed in the right direction. Gas prices are just going to make prices come up faster.

Mar 02, 2011 06:23 AM
Jay Markanich
Jay Markanich Real Estate Inspections, LLC - Bristow, VA
Home Inspector - servicing all Northern Virginia

Inflation really is something to fear.  That is the economic policy (yes, inflation is gubment policy) that truly brings down societies and then countries.

Mar 02, 2011 11:05 PM
Kevin Robinson
Twin Falls, ID
Fractional Developer

The way it looks we will be paying higher prices for everything quite soon.

Mar 04, 2011 01:18 AM
Amy Law
Alliance Properties - Crosby, TX

Ok, I must change up my post slightly, everyone EXCEPT Michael Moore seems to be concerned. He thinks that the federal and state governments are lying and they have PLENTY of money, and so does everyone else. Now I feel better that this correction is made! My credibility is back on the map! ;)

Mar 04, 2011 06:34 AM