Today, politicians are running monstrous deficits and they are inflating the money-stock like there is no tomorrow. Unfortunately, without realising the longer-term ramifications of these bailouts, the short-term oriented masses are applauding this mindless inflation. Regardless of the consensus view, it is clear to us that under the guise of 'stimulus', the policymakers are in fact confiscating private-sector wealth and steering the global economic ship towards Inflationville. Finally, it goes without saying that this reckless inflation of the money-supply is disastrous for those who have their nest eggs in cash or fixed income assets. Allow us to explain:

At the time of writing, the yield available on short-term cash is near-zero and a 30-year loan to the US government provides an annual yield of 4.2% (Figure 1). Now, although it is true that both cash and Treasury Bonds are 'risk-free' assets (they guarantee the return of capital in nominal terms), in an inflationary environment, they are not viable long-term investments.

For starters, cash and fixed income investments are vulnerable to sudden currency debasement. More importantly however, high inflation poses serious problems for money lenders (bondholders). When the value of a currency deteriorates year after year, a security with income and principal repayments denominated in that currency is not going to be a star performer. Surely, you do not need to be a brain surgeon to figure this one out.

David Fuller's view Puru Saxena is no stranger to veteran subscribers and I am delighted that I can post this issue for you. It is a compelling and timely read.