Deflation or Inflation? Where to put your cash.

The name of the game is diversification. When you don’t know what is over the horizon, plan for all options. Will we have deflation or inflation? Deflation is when banks restrict loans and thereby reduce the number of dollars in circulation, which increases the value of your dollars, and decreases food and energy prices. Inflation is when the banks or the government increase the number of loans, and this increases the number of dollars in circulation, and devalues your money (or dollars), and increases food and energy prices. In deflationary times, you want to own dollars. In inflationary times, you want to own assets; commonly gold or silver or any asset that can be quickly sold.

It’s difficult to know whether we’re headed into deflationary or inflationary times because we’re experiencing two opposing forces: banks are not lending to anyone (deflation) while the government is buying companies or loaning money to companies (inflation). As these two opposing forces balance each other out, it’s possible the value of money could remain static.

My recommendation, and I’m not a financial advisor, is to store some of your money in dollars or another currency and some in hard assets. Choose a ratio, such as 60/40, and then rebalance when necessary.

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