As we see rising stock prices again, it's important in this politically sloppy spendfest environment to remember as an investor that our currency is being debased. New money is being created rapidly, most of the time. The money is created through the Federal Reserve buying government debt, The TAELP (and similar), the discount window, and purchases of mortgage backed.
It feels good to see home price and investment prices increase dramatically. However, if the currency units are each inherently worth less than they were yesterday, then the gains are partially illusory. A few companies and investments increase in price faster than the rate of debasement. Evaluating returns accurately can be done by comparing to the rate of inflation or the "risk-free-rate" of buying treasuries. Of course if currency units are falling in purchasing power through debasement then is it truly risk free? Oddly some gains can be spent, but what the gains can buy is smaller.
So as one evaluates one's investments its smart to think about three groupings
-short-term spendable or investable gains already converted or nearly converted to cash
-longer-term gains or preservation of value in items not subject to debasement]
-traditional "diversified" paper investments like mutual funds, individual stocks, and bonds.
Tangible assets like R/E, physical gold, art, and firearms become much more relevant. In Weimar and America banks and retailers issued their own local currencies to have a means of exchange during the depression destruction of wealth. With US gov being a huge debtor, paying back the debt in lower-value dollars becomes easier. T/he debt creates an incentive for continuing debasement.
http://www.depressionscrip.com/what.html
I like the post. But I would differ in that we don't have runaway inflation at the moment. The comparison to post WWl Germany seems exaggerated. At this point we cant even compare inflation to late 70's early 80's USA.
The Fed stopped purchasing mortgage backed securities (MBS)a couple of years ago by the way. Many people argued that would create a mortgage rate run up and a free fall of property values.
The interest rate run up did happen, we went from 2% rates to almost 8% rates after the Fed stopped buying MBS but values have not only held but continued rising at a more moderate pace. For the moment you won't need to take a wheelbarrow of money to McDonalds to buy a Big Mac.
Assets are definitely overvalued and the stock market is overdue for a correction. But it just hasn't happened . Instead the markets have delivered incredible returns. Your 401k and IRA are healthier than ever.