Stagflation - Protecting Cash Savings

[Kam]

I was born in the mid 70's so never really saw the stagflation then

But it scares me now, why?

The thought of losing money that has taken me years to save up disappear,

Couple of questions:

How long did it last then and could it last now?

What levels of inflation did we see?

What IR’s did we have during that time?

I’m guessing that erosion would be roughly, inflation – IR

So if we should get stagflation what would be the best plan to limit losses?

And don’t just scream GOLD, (I have some, about 2% of my cash atm)

Having no experience of this sort of situation I have no idea how much I could loose

10% of savings over 5 years I could live with but anymore than 15-20% is gonna hurt

Deflation I don't mind

Hyper/superinflation we're all in the brown stuff

HPC - love to see it

Stagflation -

[Guest muttley]

If we get stagflation then consider short term bonds or commodities.

Deflation favours long term bonds.

IMHO, equities is the next bubble.

Could be right,could be wrong.

[Kam]

If we get stagflation then consider short term bonds or commodities.

<{POST_SNAPBACK}>

Ok I have heard of them , were would i get them?

[Guest Charlie The Tramp]

But it scares me now, why?

The thought of losing money that has taken me years to save up disappear,

Stagflation and the 70s, oh yes, many savers and sensible people would cut out unnecessary consumerism and with high interest rates felt they were protecting their money with the additional money saved and not spent. Frugality becomes the norm.

[Starcrossed]

If the savings are purely for buying a house and this asset price is falling due to higher interest rates, what's the problem?

In this scenario, surely it does not really matter if everything except houses is going up in price?

Edited August 17, 2005 by Starcrossed

[Rain'ard]

I remember the stagnation of seventies, although I don’t recall the term being actually used at the time, it was simply described as inflation.

This helped the present `baby boomers’ now as they benefited from their long term fixed rate mortgages that are unavailable now. It was from this period that the lenders learnt their lesson. In the seventies wages, salaries, interest rates rose and mortgage repayments remained the same.

I dread to think what impact this would have on our society today if this situation returned, for instance.

1 There is no Ted Heath to introduce statuary inflation proof pay rises as he did when he was prime minister. Basically what happened was that when the price of caviar rose everyone found a rise in their pay packet next month by law.

2 There are no powerful trade unions willing to act on behalf of workers to bring wages and salaries into line. These have been made impotent under legislation.

3 There is no real money or savings we already have a debt based society.

4 Of course if inflation rose as high as 23% as it did once then, how does that grab you with a mortgage of £100,000

[Lord Blackadder]

http://news.ft.com/cms/s/5fe58adc-0e0f-11d...000e2511c8.html

An alternative way of explaning of why we are up the proverbial. The governments are just letting us consume as much as we like on the back of the developing economies and are own debt. This faustian pact will come back to haunt them.

Money Morning advises: "on Monday, China allowed the yuan to close at its highest level against the dollar since July's revaluation - 0.16% above the initial appreciation of 2.1%. That makes imports more expensive. So there's every

chance that the prices of clothes and electronics could stop falling, particularly if China frees up the yuan's daily trading band to 2% from the current 0.3%, as one

state agency has suggested".

Mandelson, like the ***** he is, is desparately trying to hold back the tide of jumpers threatening the Eu economies but is actually just warming up inflation in the process.

What is the definition of stagflation? Based on trends - decreasing growth and increasing inflation - we're there already.

[schadenfreude]

There's not such a big difference between the TU power of the 70's and the bloated public sector of today. Watch the public sector pay settlements start to rocket above private sector in the coming months.

Mind you, I can't see myself bothering too much if the nations community outreach workers go on strike for a while. It's not exactly the gravediggers like last time round.

[BoredTrainBuilder]

There's not such a big difference between the TU power of the 70's and the bloated public sector of today. Watch the public sector pay settlements start to rocket above private sector in the coming months.

<{POST_SNAPBACK}>

A growing scandal is the continued linkage of public sector pensions to final salary but not in the private sector. Plus early retirements etc. This has the same effect.

[schadenfreude]

Not only this, but they are 'hiding' public sector workers from the published figures. There's a growing scandal in the Scottish press around the Executive failing to count 110,000 contract workers who effectively work for the public sector, but nominally are employed by a private sector firm.

[schadenfreude]

Went a bit off topic on the public sector rant.

I am pondering the same stagflation protection issue, and have tentatively started to put a proportion of money into index linked gilts and some into non sterling assets - Japanese equities are looking like a good hedge against UK inflation and dollar volatility.

The people that really get punished in a stagflationary environment are the cash under the bed savers and those who find their pay rises lagging inflation. It's all very well that real debt is being eroded, but you still have to buy the essentials.

[Rain'ard]

Further to your point S

It depends in who’s interest these statistics benefit. The private fat cats representatives (forget it’s title) deliberately left out these 110,000 contract workers, because as they’re paid cr@p money they didn’t want this factor to lower the average of public workers pay compared private to be lower than there claim of 17%