Inflation Will Soon Rear It's Ugly Head Again

It would be nice if we could live in a world without inflation. A world where people's hard-earned savings and pensions weren't eaten away by ever escalating prices. And the inflation genie has been kept in the bottle for quite a while now compared to historical standards. Just as they say on wall street, "you just can't fight the tape."

So too it should be said, "you cannot behave as you do in times of deflation, when the cycle switches to inflation."

I could go on all day explaining what causes inflation and deflation cycles. But the simplest way for the average person to understand this, is that when world governments pump a lot of money into the economy, this always leads to an inflationary spiral. And when they stop pumping money then deflation soon follows.

Because, here in the US we continue to have a high unemployment rate, and their hasn't even been a COLA, or cost of living allowance for social security recipients, I for one was hesitant about calling for a cycle change. But when our government pumped 600 billion dollars into the economy recently, I took that as a signal, that our government is now planning on inflating us into a better economy.

Don't know for sure, but inflating us into a better economy, just may have something to do with the next upcoming election for President. It's a lot easier for a sitting President to win when unemployment is low, and workers are getting pay raises. And especially senior citizens like it when they see the interest rates go up on their savings accounts and their social security checks get a nice COLA increase.

So what does one do about this economic change in venue? Well, okay, if your rich, your financial adviser will tell you exactly what to do, But if you are living paycheck to paycheck, have no doubt, you are just plain out of luck. And most likely you'll end up working a lot of overtime, or even a second job, just to keep up. But there are at least a few basic things that Mr. & Mrs. living paycheck to paycheck can do to protect themselves, at least somewhat from inflation.

First, and most important, if you have an ARM or adjustable rate mortgage, get rid of it pronto, and switch to a 30 year fixed mortgage while mortgage interest rates are still close to rock bottom. If you are in the chips, you could get a 15 year fixed mortgage and save a lot of money, but you would be making a much larger monthly payment. So consider this only if you are doing really well and are confident in your income stream.

Second, switch all your savings to short term. Because as inflation escalates, longer term savings will pay much higher interest rates. So, don't lock yourself into the current paltry rates that banks are offering today.

Third, do take advantage of those great deals that banks are currently offering on credit cards. Inspired by our government, major banks are offering from six to twelve months no interest APR on purchases and balance transfers. I noticed that one major bank was even offering a free APR on a balance transfer for 18 months. Of course, I certainly wouldn't want to encourage anyone to get in over their heads, but if you are currently paying 12% or so on one card, it makes a lot of sense to switch it to a card with a 0% APR that may go from 6 to 12 months for purchases, and a balance transfer that may be at a 0% APR for up to 18 months depending on how good your credit rating may be.

Fourth and last. Don't go wild shopping if you don't really need anything. But if you need to make a major purchase, make it now while your buying power is much better then it will be once inflation comes. Otherwise you'll end up kicking yourself that you didn't get that new TV, computer, bedroom furniture, living room furniture etc., etc. And right know there are plenty of major department stores that will give you a long time to pay, and at zero interest.

To be sure, no one knows the exact date, that prices will be moving up. It could start next week, or next month, or whatever. But, know this. When governments all around the world start pumping the global money spigott, it always leads to inflation, higher prices, and higher interest rates. But if you're ready, and do a little planning, inflation just may be a little less painful. But, yes, it's still going to hurt.