Do T.I.P.S. Really Make Sense?

One of the solutions that is often offered for those who are concerned about inflation is to invest in Treasury Inflation Protected Securities or TIPS.

But for those who accept the logic of the Austrian School of economics, inflation is caused by an expansion of the money supply by the Fed's purchase of otherwise unmarketable U.S. debt securities.

So if we are concerned about inflation arising from recent legislation that will require a huge amount of deficit spending, does it really make sense to invest in government debt that promises to keep up with the inflation that is caused by that same government?

Also, there is a lot of plausible information to support the view that the inflation index that is managed by the government is about 50% of the real rate of inflation. For more about that subject see Shadow Stats.

What kind of investments do keep up with inflation? Think about a combination of precious metals, commodities, short term debt, a paid off residence, tangible things like guns, ammunition and generators.

Can you make a profit by building up a lot of debt during the current recession and then paying off that debt with cheaper (inflated) dollars? Perhaps, but the lenders are also aware of possible future inflation and will be raising rates in anticipation of future inflation. So the question is, can you outsmart the bankers on the timing of future inflation? And can you invest that borrowed money to make an after tax return in excess of the inflation rate?

Vern

www.vernonjacobs.com