Inflation Coming?

When I talk to many of you through blogs, twitter, e-mail, or in person, one of the first topics we discuss is inflation.  Everyone is worried about inflation.  We all know the government has been printing a lot of money lately.  But, I’m not sure you’ve ever seen just how unprecedented what the government is doing since the fall really is.  Do I worry about inflation?  In short, yes. 

monetary base jun 2009

Above is a picture of the monetary base going back to 1959.  The monetary base is the amount of money in the economy.  It includes coins, paper money, and commercial banks’ reserves with the central bank.  You can see from the picture that it’s doubled just since the fall.  Now, one way to get a struggling economy to get going is to print more money.  There’s no question, it is working.  We are seeing more and more positive economic data.  In the long run though, all it’s doing is allowing a terminal patient the ability to live.  That patient will be sick for quite a while but he’s not dying anymore.  Everyone’s celebrating as they should.  We’re celebrating by watching stock prices go up.  But, the long-term effects of this big jump in the monetary base is not good for our economy or the average Joe in the United States.  Inflation is coming.  The cost of goods will go up.  The question is when inflation hit and how much will it be?  I think it’ll be enough to change people’s lives if they don’t start preparing now.  That means looking at commodities, TIPS, emerging markets, etc.  That doesn’t mean buy and hold but I think the path of least resistance in some of these areas will be up over the next several months and perhaps years.  Start thinking about it now.

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