So having got thoroughly engaged in the economics of our age and making a decision to buy gold, I did a bit more homework. What I have found out is that there is a balloon approach to this whole economic conundrum. It is either going to huff and puff itself full of hot air, or it is going to sag into a sorry mess.
As I see it the two possibilities for this balloon are Inflation and Deflation.
Inflation is the idea that I mentioned before, with the governments printing money that they do not have, prices for goods and services pushing upwards and as a result; money, the cash that we have, becomes worth less and less. The fix is to try to invest in commodities that might hold their value against inflation or even better shoot through the roof as more and more people try and find a safe haven for their pennies in more scarce resources.
Deflation is where nobody has any confidence in the markets and so people stop investing in anything; preferring instead to hold onto what cash they have, thinking that things will get cheaper ‘tomorrow’. Commodity prices such as gold may well go down at this time, with everyone waiting a day more, a week longer, a month more to try to get a better price, a better deal. As more and more firms go bust, unemployment goes up, people start to default on their mortgages, houses get repossessed, the housing market crashes. At this point if you have cash you are doing well so will get more for your money. Cash is king here.
So do you recognise any of these in our world today? The point is that both of these apply. It could go either way. We have seen inflation desperately being forced on us to try to jump start spending and an economic revival, but with more and more high street names being added to the closure list, it looks like we are heading for a deflationary depression, like it or not. How long this lasts and how soon before inflation takes our mortgages sky high in these volatile times is the crux of the matter. So the path through this may be to hedge your bets. Some are suggesting some cash, some gold. Some are suggesting careful and safe money markets such as Switzerland. Some are suggesting hybrid mortgages which are half fixed, half variable. It appears that no one knows where or why we are heading, rather like the balloon that is flying high but looking like it might just snag on that thorn bush over there.
As I said to my mum last night, it doesn’t really matter what the markets do. Unless I start saving something, anything, sometime, my money is in a far more dangerous place…in my purse. That it would be spent and lost is a foregone conclusion, so any attempts I make are a worthwhile investment in my book. On that note I am off to auction.