Time to Figure it All Out

Posted: May 21, 2013 12:01 AM

The quantitative easing that has been going on under the direction of Ben Bernanke and the Federal Reserve seems to have been with us almost half  a life time, but it hasn't. It arrived after the beginning of the financial crisis, and was supposed to be a panacea, but it hasn't demonstrated to be the “do-all” solution to our financial problems. A month or so ago there was a belief that we might be heading back into recession as the economic indicators were starting to slip. Now the thought is the economy appears to be ready to roll.

If another recession happens we certainly can't turn to quantitative easing to help get us out of it, because it didn't get us out of the first recession. If things start booming we are almost guaranteed a massive dose of inflation, which will probably be more harmful than the recession. The Fed is currently adding approximately $80 billion a month into the economy. Inflation is still in check because in order to get inflation rolling, you need money times velocity. The banks are making sure loans are not either prevalent or easy and therefore rampant inflation hasn't occurred as yet.

With one of the aforementioned outcomes probably just around the corner what is a person to do to protect themselves in the short and long run? Your two major concerns should be about your income and your debt levels. When it comes to income you should be concerned as to whether yours will be able to keep up with inflation. When it comes to debt, many will tell you to increase your debt and pay it back with deflated dollars. I will not join that club for several reasons. If the inflation that is anticipated doesn't materialize and a recession shows up, there goes the cheap dollar scenario. If your income doesn't keep up with inflation more debt will not be a winning strategy.

The reason I bring all this up is we are past your Uncle Bob's era when the answer to any question about mortgages was "a 30 year fixed, mortgage". Now we have a Congress looking for ways to raise money to cut the deficit and legislatures who thrive in changing the rules for industries of which they have limited knowledge.

Go at it alone attitude could work for some people, but I believe that it isn't the fact that you may not know the answer for every question that could be the decisive one; it's the fact you may not even know the right questions to help you determine the best answer that could be the problem. Another approach from a professional in the field might be the magic panacea.

 My last caution is that time's a wasting. Low rates are not part of any of our birth rights and could disappear quickly. Time is running out - plan your future, both long term and short. Plan it now or some politician's whim might turn out to be your default plan. 


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