Inflation fears have only limited impact

Article Excerpt

In the past century, the world’s great powers have shifted from a gold-linked monetary system to a system based on fiat money—paper or electronic money with no intrinsic value. Fiat money only works as a medium of exchange/store of value because it has the backing of government decrees or fiats. This long-term multinational experiment, accelerated by massive pandemic stimulus spending, could struggle on for decades to come—or it could come unglued abruptly. That could result in a revival of inflation as interest rates rise. The best defence against rising rates is to stay out of bonds. After all, bonds drop in price when interest rates rise. Interest rates are at historical lows. They could rise a long way, yet remain below their long-term average. To top it off, as with all fixed-return investments, the interest income you get from bonds is fixed. This leaves bond holders defenseless against a rise in inflation. In today’s situation, bonds look like a heads-you-break-even-tails-you-lose solution. That’s why…

You are trying to access subscriber-only content.

To read this article, you may subscribe or sign in.
If you are already a subscriber, log in here.

If you wish to become a subscriber, click here. Or you may enjoy access to all our publications when you become a Member of Pat McKeough's Inner Circle Pro.