Projected major inflation vs changing criteria

[Nathan Barshinger]

With all the money being printed out by the government, what is everyone's plan as far as changing their criteria now to prepare for the next couple years with the projected major inflation? 

[Joe Splitrock]

@Derrick Dill the fed recently said they will let it run up to 3% to make up for lower than target inflation over the last year. 

@Nathan Barshinger inflation is necessary when the government increases debt spending. There is no way the government could pay back this debt without the help of inflation devaluing future currency. That is your answer of how to respond. Taking on debt is the best way to hedge against inflation. 

Another reason I like rental properties is because they are inflation adjusted investments. Both rents and property value increase with inflation. 

Inflation hurts savers the most. If you put cash in a savings account and you are getting 1% in a 2% inflationary environment, you are losing money every year. Even in the stock market, people love to chart out 20 or 30 year average returns, but they fail to include inflation in the numbers. Someone in their 20's might think $1,000,000 is a good retirement goal, but 30 years from now the buying power of $1,000,000 will be equal to $500,000 today. That is why "being a millionaire" isn't really wealthy anymore.

Compare that to rental property loans. I have loans I took out this year that are 3% fixed for 30 years. I can claim that interest as a business expense against my taxes, which means roughly 25% of that interest comes back through deduction. That effectively reduces my interest rate by 25%, so I am actually paying 2.25% interest out of pocket. With the power of inflation, future dollars I pay back are worth less. If inflation is at or above 2.25%, I come out ahead. It is basically getting a near 0% loan to buy properties. By year 30 of my loan, I am paying back dollars worth half as much as the day I took out the loan.

There is probably low risk of hyper inflation, because if inflation raises too much, the fed will take steps to increase interest rates to slow down the economy. That being said we can expect interest rates to stay low for the near future. The fed has stated they will buy unlimited mortgage backed securities in an effort to keep mortgage rates low. When asked recently when that will change, the response was that they have not even though about thinking about changing the strategy. 

Plan for low interest rates and higher than normal inflation over the next year.