bearfund

Stagflation and Peak Oil: How Related Are They? (Part II)

A good summary. Unfortunately your very first suggestion is all but useless. TIPS track the CPI, which is not a realistic measure of price increases. They may do somewhat better than ordinary Treasuries, but ultimately the understatement of price rises and the tax disadvantages (see also gold - is it shocking to anyone that inflation protection is taxed so brutally?) will cause them to lose purchasing power.

Then there's the supply problem. The deficit is already enormous and is growing as more bailouts and "stimulus packages" force the Treasury to borrow ever more. For now demand appears to be keeping pace, but there are limits. When (not if, when) foreign central banks decide they've had enough, this game will come to an end and interest rates will rise abruptly. TIPS all have intermediate to long duration (no 1-year TIPS, sadly) and will be crushed when 10-year rates inevitably hit 10% while the CPI continues to be reported at benign levels like 4-5%.