The real threat of both deflation and inflation is more serious than ever. Nearly everything is overvalued, however, governments and central banks need to keep the bubble going in order to keep the current global monetary system working.
Tax revenues, the wealth effect, and even debt payments all depend on an ever-increasing credit expansion. Now, this is all unsustainable, and I have no doubt that the natural forces of the market want to clear away this debt and overvaluing of assets worldwide. But, and it’s a big but, the central planners and governments worldwide need inflation.
Our economy is like an overdosed drug addict, who appears to finally have hit a wall and desires to go through withdrawals and be set on a path to a real recovery. However, at every chance the central planners get, they pump it full of more heroine. Deflation is a real risk, and threat, but always keep in mind that the FED and global government leaders will do anything and everything to fight it, including a major world war.
How to prepare for both: cash, gold, high-quality stocks, and real estate.
- Cash is for liquidity and new opportunities.
- Gold is used as a crisis hedge, and at this point is a real investment, due to supply and demand imbalances.
- High-quality stocks are because you want to own real assets, and that’s what stocks are: legal claims that are backed by businesses.
- With real estate, you need cash-flow, and this asset is tangible.
Final Thought: If we see deflation, I personally believe it will be a deflationary shock to the system that will be short-lived, followed by a massive world-wide currency crisis.