In the mid-1960s, debt/GDP was around 50% of GDP. By 1980, it was down to 30%. Why did this happen? Inflation. Inflation reduces debt because you can pay back loans with currency that is less valuable. It is more politically convenient than raising taxes or cutting spending.

With debt levels rising, I think our government is likely to at least *try* to engineer inflation because it is the most convenient way to reduce debt.

Whether or not they succeed is an open question. The Japanese tried to spur inflation for years and failed.

From an investing perspective, it’s easy to get mad about inflation. I think it’s best to just accept it and make sure that the portfolio has inflation protection. Three asset classes should benefit: real estate, gold, and TIPS. The one hurt the most is treasuries.

It’s easy to get complacent about inflation protection in a portfolio because it has not been a problem for 40 years but there is no guarantee that the next 40 will be anything like that last. I think a portfolio should have elements prepared for a return of inflation.

A lot of people think crypto currencies will benefit from inflation. Maybe. I think that’s unknowable. There is no track record to know how it will behave during inflation. It also seems unlikely to me that crypto will be able to overcome the power and will of the government.

Others think stocks benefit from inflation. That’s not really true, as the 1970’s demonstrated. While earnings increase with inflation, the government also needs higher rates when they eventually try to get it under control. Higher rates = lower multiples.