Why TIPS Will NOT Protect You Against Inflation

TIPS are in theory an attractive investment in a seemingly low inflation environment with a lot of promises for future inflation. However, in an environment where official economic data including unemployment and inflation among many others are miles away from reality, and with a Federal Reserve and mainstream media doing everything they can to hide the truth from the people of the US and paint a rosy unrealistic picture to keep the stock bubble going, TIPS are not going to do what they are meant to do. For the last decade we did not even have an official inflation data that started with the digit 4%. This in a period when commodities such as oil that is the biggest expense for many Americans went multiples and food prices have risen and rising still even at the brink of economic disaster and other consumer goods going up in prices just as fast, is just ridiculously unreliable and could not be farther from the truth. Some people will talk about inflation ex-food and energy. That is the dumbest concept invented by the Fed and that a lot of so called "economists" have swallowed or preferred to swallow. The essential expenses of the majority of Americans is food and energy. Most of the country earns much below the around $45k per capita GDP as income in thecountry is heavily skewed towards the very few ultra-rich. Yet again, the income and wealth cliffs in the country are skewing the realities of the country. Hence the majority of the country does not get a chance to spend elsewhere when prices for food and energy are climbing several hundred percent a year or every few years.

The second reason not to own TIPS after the fact that the inflation adjustment to the principal amount of the TIPS is that they are a US government security. US government has way too much debt and has very serious trouble in the next couple deceades waiting for it. Besides TIPS do not protect you against dollar depreciation in a real sense and the world is going in the direction opposite the dollar. The dollar is losing its prominence as the world's reserve and trade currency. TIPS is not going to protect you against the demise of the dollar nor that of paper assets for that matter. In the upcoming Weimar days following the competitive devaluations we are seeing in the major economies -most prominently that of US and China and Japan- you do want to own hard assets and not paper assets. And of course you should own at least a healthy bit of gold.

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