Back when Ben Bernanke and his mob over at the Federal Reserve began talking about quantitative easing (QE), we wrongly assumed that the Fed chairman wanted his mammoth cash infusion to actually reach the economy via loans from private banks to small business. How silly we were. Recent actions by the central bank make it seem that, for now, it doesn’t mind letting the almost $2 trillion in cash sit in reserves waiting for…what exactly?
Here’s what’s happening. The stated intent of the various iterations of QE were to stimulate the economy with a massive flow of cash. But before it ever reached the intended users (small business owners), the Fed turned around and started paying interest to those banks who chose to keep their money in the Federal Reserve pot rather than lending it out.
Can’t say that we blame the bankers. With a choice between earning a guaranteed 1% to 1.5% or taking their chances by making loans in a free market befuddled by a major recession and subsequent almost imperceptible “recovery,” these bankers are taking the easy money. This is why we haven’t seen explosive inflation in the US economy yet, but sooner or later, when that fat pile of Federal Reserve cash begins to steamroll into the economy, watch out! Prices are going to shoot up.
Let’s be clear. Inflation is going to happen. There’s nothing you or anyone else can do to stop it. But don’t make the mistake of thinking you’re defenseless because nothing could be further from the truth. As a young man, Jason Hartman realized that the way to increase one’s wealth in the face of inflation is to hold debt in the form of long-term, fixed-rate mortgages attached to a piece of income-producing property. How old is Jason Hartman’s innovative twist on an old-fashioned strategy? It’s been working for him since he earned his first million dollars at the age of 27.
In the intervening years, he’s been regularly adding to his portfolio of properties, purchased with the least downpayment possible, and refinancing every 5 to 7 years. Money pulled out of old properties gets plowed back into the purchase of new ones. The real secret to earning profits in inflationary times is to understand that you don’t want to pay off the mortgage on rented properties! In fact, your goal should be to pull money out through refinancing once it builds to a certain level. (Top image: Flickr | LearningLark)
* Read more from JasonHartman.com
Is Your Business Headed for Disaster?
The Jason Hartman Team
