Inflation is a horrible monster. It eats away at the purchasing power of your money and it reduces your standard of living.
Remember the riots in Egypt recently? One of the prevailing factors that stoked the riots was the ever-increasing price in the cost of goods.
Once basic necessities start to get out of the reach of the average person, violence can easily break out and that’s what happened there.
Right now, Egypt has an inflation rate of 11.80 percent. So that was high enough to cause a riot-level, government-toppling stir. Honestly, this is the biggest reason why politicians don’t like rampant inflation. It’s because it threatens their reign.
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Here’s the thing about inflation — It doesn’t grow in a straight line. At a certain point, it catches fire and goes more parabolic. Where does it hit this crucial point?
Well, in the 1970s here in the U.S., it picked up steam once it got to about 5 percent. It went from 5 percent to 12 percent in just a year or two. It was one of the toughest times in American history as a result.
Well, here’s the scary part. Many countries are near the point at which inflation picks up significantly.
For instance, the U.K., Singapore and New Zealand are all at 4.50 percent inflation right now. Hong Kong is at 5.20 percent and China is at 5.50 percent (and economists are already saying that they will top 6 percent shortly).
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So what happens to America if we reach Egypt-like inflation? Will we have any more favorable outcome? We could very well have riots in the streets here too.
The U.S. inflation rate is at 3.60 percent right now. It’s been steadily growing too. If the U.S. sits on their hands and doesn’t raise interest rates soon, then we’ll see 5 percent to 6 percent inflation. Once it gets there…the beast has been released from its cage and it’s hard to get it contained. It takes drastic measures that are painful to individuals, the job market, corporate earnings, etc.
So if the Fed keeps its accommodative policy much longer with rates that are low “for an extended period,” then we’re going to be in for an “extended period” of inflation too.
Most people will be kissing a lot of their money goodbye.
So what can you do as a proactive measure to combat the rise of inflation? Invest in the things that benefit from the rise of inflation such as commodities, commodity-related stocks, commodity ETFs and the commodity-currencies like the Australian dollar, New Zealand dollar and Canadian dollar.
As inflation rises these financial assets will rise too as most other financial assets struggle to stay afloat amidst ever-rising inflation.
Therefore, while you can’t count on the government to do the right thing in the “here and now,” you can do something to fend off inflation’s ugly claws getting into your pocketbook. Start arming yourself today…because things could get much uglier on the inflation front sooner than most people may think.
About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here
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