Monday, March 9, 2009

Inflation Increase Could be Staggering

While everyone is worrying about their job, their stocks, their mortgage payments and thei rpersonal finances, there is an underlying problem simmering under the scenes. What is it? Inflation.

Inflation is the devaluation of a currency, weakening it's national buying power. Over the last 20 years we have not really had any problems with inflation, with it averaging just 3-4% per year at most. Having said this, the 20 years prior to that was riddled with concerning inflation numbers. Check out this chart to the left showing the inflation rates since 1885.

As you can see in the 70's and 80's Inflation rates were hovering around 10% per year. That means that if a gallon of milk was $1 in 1979, the same gallon of milk was $1.13 in 1980. That might not seem bad, but apply that to every expense one would have had, and you are talking about a decreasing wealth affect in America.

The reason I brought inflation up is because Warren Buffett beleives we may seen things just as bad, if not worse then we did in the 70's and 80's. Why? Because the world economies, especially the US are pouring trillions of dollars into the economy. You can just throw money at a problem and expect it not to eventually devalue the currency. If we were to see rapid inflation I would guess it would be sometime in 2011. The FED can rate interest rates to try and hold back inflation, but will it be enough? Feel free to leave your feedback at Talkgolds Investment Forum.

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