The Biden administration is looking to spend big money to the tune of $1.9 trillion to propel an economic recovery, while at the same time the Federal Reserve is doing all it can to hold down interest rates until the economy bounces back. The financial gurus (AKA the talking heads) are predicting US inflation to move up 2% over the short term, and it’s not just the US that is experiencing this dynamic. International Governments face the same COVID-19 related economic challenges.
Some economists are worried that 2% inflation is understated. The combination of a big increase in money supply ($1.9 trillion is historic) along with a prediction of a post pandemic spending boom could spell big trouble, can anyone say Venezuela? No one in the US could fathom paying $50 for a gallon of gas or loaf of bread, you think that’s outrageous? Can anyone say Venezuela? Ok let’s not panic, skeptics point out the same situation existed during the 2008 financial crisis with the same inflationary concerns. Thank goodness those concerns fell flat.
Now to be clear not all inflation is bad. In a global environment saddled with debt some inflation would ease the burden. Anyone who remembers the 80’s is worried about even having this conversation. Bottom line, inflation erodes the real value of money, meaning you need higher rates of return for your money to keep the same purchasing power.
So what can you do if inflation rears its ugly head? Put cash to work. I’m sure you’ve heard of the “always have three to six months of expenses as cash reserve” rule. If you followed this advice perhaps buying gold with some of the money could be a defensive hedge to inflation. Also consider inflation linked bonds. A convenient way to invest in these products are through exchange traded funds (ETF) that track inflation protected bonds. As always you should seek the advice of a professional before investing your hard earned money. Either way most experts agree having a plan is the best course of action, many times picking the wrong plan is still better than having no plan.
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P2P Energy Solutions is an Energy Advisory and Consulting firm specializing in procuring and trading energy on behalf of our customers located in deregulated markets.
At P2P Energy Solutions, our mission is simple – to educate all energy consumers regarding the benefits of energy deregulation and the positive impact that choice has on them. We give you, our client and most valuable asset, the “Power 2 Profit.”