We can look at inflation as it being a financial cancer, it’s slowly and relentlessly eats away at the value of our savings and investments. Some investors would prefer to ignore inflation; but It can take prosperous looking investment outlooks and make them look downright ordinary. The $1 million portfolio that you expect to have in 10 years will be worth considerably less in real purchasing power. Ignoring the effects of inflation when it comes to your portfolio is nothing short of dangerous. Inflation is the reality of our time, and it has been for least a human lifetime now. And for reasons that are beyond majority of us, and will always be. For that reason we need to prepare ourselves for it, even when it doesn’t seem so obvious….Our banking system is built to create inflation and this is on purpose.
Inflation is baked into our monetary policy, this is why is looms over us and seems to never be a topic that will go away. Government officials and banksters like to talk about inflation as if it is some sort of virus that they are working tirelessly to eradicate. Truth is that it’s the exact opposite! This isn’t some conspiracy theory that someone can just disregard. Milton Friedman quoted “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.†Government has a vested interest in having inflation, and the banksters who create it. Putting them at the top of the financial food chain, the federal government gets the biggest benefit from the extra dollars. Simply it puts in a position to spend money that they would not otherwise have. That extra money that the government spends is at the very causation of inflation. In addition, inflation means higher prices and salaries, and that ultimately translates into higher tax revenues. If you’re in the federal government, what’s wouldn’t you love about inflation? Banksters love inflation too because it protects collateral values of loans. Consider the real estate meltdown of the past few years. Mortgages were in trouble precisely because house prices were falling. As house prices fell below the loan values, the threat of homeowners walking on their mortgages increased. Rising real estate values increase the ability of bankers to collect on their loans; falling values put collection in doubt. The last time that we experienced true deflation in the United States was during the Great Depression of 1930s, and the government did every thing it could to inflate its way out of that situation. In fact, ever since the 1930s the government have been using inflation as a way to prime the nations economic pump!
Moral of the story….inflation has been here with us for over 80 years and there’s no reason to believe that will it disappear any time soon. So we are stuck to have the mindset of Investing with an inflation in mind. So how can taxes and inflation related? First off they both originate with government. Government may impose one (taxes) and hide its participation in the other (inflation), but the net result is that both leave people with less money. Secondly, just like taxes, inflation reduces your purchasing power. Taxes reduce your purchasing power on the front end, while inflation does its dirty work on the back end where you can’t necessarily see it coming out of your pocket. This is why inflation is referred to as a invisible tax. Both taxes and inflation benefit government with additional revenue, while leaving you poorer as a result.
When it comes to seeking a savior from taxes, we look for a combination of tax-free and tax-deferred investment instruments. But dealing with inflation we must take an entirely different approach. We have to develop a specific asset mix that will allow our investments to grow at a rate faster than inflation over the long haul. We have to think of inflation as a very long term situation. That means preparing to deal with it over many decades. The way to do this is by achieving consistent growth. Commodities can do that during the short periods of high inflation. Stocks are much better bet during the times of lower inflation.