>> Eric Schurenberg: Hi, I'm Eric Schurenberg, Editor-in-Chief.
>> Jill Schlesinger: And I'm Jill Schlesinger, Editor-at-Large.
>> Eric Schurenberg: In today's Reality Check, inflation versus deflation. What do you need to know?
Music Jill, inflation verses deflation, some people are panicked about the one; some people are panicked about the other. All you need to know to invest right for the next decade is to know which "flation" is coming.
>> Jill Schlesinger: Right, and all you need to know is when you're going to die to really properly plan for your retirement, and it's unknown right now. That's the real problem. This is like the economic Smackdown of the moment. On one side, we have people who say, "We are running huge deficits. Naturally what's going to happen after the government pumps tons of money into the system is that it will lead to higher interest rates and inflation, the price of goods and services going up dramatically, it's going to happen." That's what they say.
>> Eric Schurenberg: That's what they say. Now, the people on the other side say, "All right, if that's the case, how come we don't see any sign of it? How come interest rates are low? Why isn't the bottom market reacting? Why isn't there more of the premium for inflation-adjusted bonds?" There doesn't -- and at the same time, they're saying, "Consumers aren't spending. The economy is weak. Where can you get inflation when you have such a dour economic outlook?"
>> Jill Schlesinger: And I think that what the inflation hawks are really trying to say is we agree. We don't have it inflation right now. We are worried down the line. Now, a lot of economists -- some of the people that you know in your fancy circles, Eric -- are saying, "This is not a problem today. Let's not worry about it. Our biggest risk is deflation, a Japan-like scenario, where prices keep going down and down and down, and actually consumers continue to wait to buy things as prices move lower, getting us stuck in a deflationary spiral." And that's a problem that the Federal Reserve actually can't attack, can it?
>> Eric Schurenberg: Well, I think that that -- and that's the thing that worries people the most because that's associated with high unemployment and an economy that just can't get off the dive. Having to choose between two evils, the government surely would prefer inflation.
>> Jill Schlesinger: And in fact, if that's the case, and we know that the government is probably gonna really nudge towards inflation; what people can do in their own portfolios is prepare for that. So what does that mean? That means that perhaps you might consider, if you're going to buy a bond and you need something safe in your portfolio, you would buy a TIP, A treasury inflation protected security. You can go out and buy a TIPs fund, all the big no-load fund houses but have TIPs funds. You can also, maybe, have some precious metals; have some commodities as a hedge against that, also a hedge against the falling dollar. So those are areas where you might see a little protection. By the way, some stocks do okay in and inflationary environment, so you don't just dump out all of your stocks.
>> Eric Schurenberg: Right. One thing you don't want to do, probably, is have long-term bonds. They're very vulnerable to inflation, and the place to get your income might be dividend-paying stocks. But will have to leave it there. That's your reality check.
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==== Transcribed by Automatic Sync Technologies ====
