You could also argue that we have had deflation recently. Gasoline was $4 a gallon a couple of years ago, but is about $2.60 now. Houses are down, also. Some in my community are literally half of the former going price.

So, what should I have done? Gasoline deflation has not been harmful to me personally since it did not cause my income to decrease along with it. Housing deflation caused me some grief since it weakened some securities that I owned. So I should not have owned those securities. Since I kept the same house throughout, I was not affected by its change in price.

What about inflation? Before I retired, my income kept up with inflation quite well. Now, however, this is a challenge for me. Stocks or stock mutual funds appear to be the way to run that race.

The conundrum is clear.

These cycles are nothing new, revisit your history lessons.

I have read — somewhere! — that in 1776 an ounce of gold would buy a good quality man’s suit. And I think it would do so today, after 230 years of inflation, deflation, and going sideways.

You can’t eat gold or grow corn on it, but it is useful as an intermediate exchange. If you have cabbages to barter, and I have vitamin pills, we can only reach a useful exchange if I want cabbage soup and you feel a need for B12; and even then the exchange rate may not be convenient for one or the other of us. But if you can turn the cabbage into dollars or rubles or gold; and if I can do likewise with the vitamins; then we have what the computer world calls an “interface”, that is, a means of speaking the same language to each other. Thus, I think gold is useful.

And if I have to flee across the border or over the ocean, but manage to have the gold with me, the people on that other side will recognize what it is and be able — and probably willing — to provide goods, services, or their currency in exchange.

Since it’s tough for individuals to own much real estate without having a pile of debt, it makes more sense to own paper assets like REITs that invest in real estate for you. Nimble companies that can exercise lines of credit to expand their businesses are good bets, too. You don’t, however, want a company that’s already saddled with debt before the inflation hits as they may not be able to go further in debt.

Yes it makes sense to hoard cash, but CDs is not how I would do it as their yield is down. Instead, buy high-yielding stocks, MLPs, REITs, and royalty trusts with stop losses set very tight. You’ll easily get double the yield of a CD and with tight stop losses, you’ll have nearly the same security.

Honestly, I think buying precious metals because “the end is near” is silly. If you are really that concerned about the collapse of society, store food and water, and learn how to do things for yourself. I know I am not trading my food storage for gold, and I doubt you’ll find anyone else willing to do it either. Heck, I’d almost rather have paper money, at least then I could burn it if it’s cold.

I think that cash has a risk in a deflation scenario. What if the government calls in the old dollars and issues new ones? Or if they simply said to banks: for every ten dollars on deposit, you will now pay out one. I know this seems crazy, but who would have thought that banks would renegotiate mortgage terms?