Inflation? Deflation? It's All About 'Meflation'

yaho o wsj ^ | Monday, September 13, 2010 | Jason Zweig

[BenLurkin]

Either Uncle Sam's borrowing binge will flood the system with money, leading to a replay of the 1970s as inflation eats away at your purchasing power. Or all that debt and the liquidation of distressed financial assets will paralyze the economy and send prices falling, like the deflation Japan has suffered for the past 20 years.

As obvious as it may sound, the belief that you ought to make a call and then overhaul your portfolio accordingly is wrong.

"Instead, what matters is which of these risks would be most damaging to you."

Depending on your circumstances, either a rise or a fall in the cost of living could be good for you.

If you are a bright 30-year-old with a good job, a stock-heavy portfolio and a fixed-rate mortgage on your house, moderate inflation is probably a good outcome, Mr. Swedroe says. Your wages should rise roughly in tandem with the cost of living, you can pay off your mortgage with cheaper dollars over time, and the value of your stocks and your home should eventually go up.

Your more imminent threat is deflation, which may jeopardize your job security, can hurt the value of your stocks and will raise the real value of paying off your mortgage, even as it depresses how much your home is worth.

But if you are a retiree living on Social Security and pension income, the last thing you should worry about is deflation. Falling prices would be good for you. With each passing month of falling prices, your income would go further.

Thus what you should worry about is a rise in the cost of living—since your income is fixed and your potential earnings as an employee, if you did try to return to the work force, are fairly limited.

[loveliberty2]

Thank you. What we really need to accomplish is to change the Congress and Senate to stop the spending and ever-increasing debt and deficit which put the liberty of millions at risk.

Restoration of the principles underlying the Constitution in the minds of the people, limiting elected representatives to their appropriate roles, and holding them accountable by term limits will mean that freedom of individual enterprise can flourish, and the nation can, once again, be prosperous and free.

[Kartographer]

It's all about 'Obamaflation'.