In January 2009 I wrote one of my most popular posts to-date entitled Paying Off Your Mortgage Early Is A No-Brainer. In that post I did a detailed analysis that justified why paying down my mortgage was the right thing to do.
That Was Then, This Is Now
Of course, that was before all of the corporate and homeowner bailouts approved by Congress.
That was also before President Obama decided to go on a spending spree that makes George W. Bush look like a miserly tight wad.
As I’ve noted before, Obama’s unprecedented budget includes a funding shortfall of almost three trillion dollars over the next two years, an amount equal to a staggering 12% of the entire US gross domestic product and twice the size of the worst deficits on record. The government printing presses are already on overdrive trying to cover these bailouts and the budget deficit.
Of course, there is a method to the madness.
I mentioned during Inflation Week at Len Penzo dot Com that the United States knows that the politically safe and expedient way to dig itself out from under the massive pile of debt it has accumulated is to devalue the dollar via massive inflation, if not Zimbabwe-style hyperinflation.
The reckless policies of the recent past have now increased the threat of high inflation such that it is now a very real possibility. As a result, I have therefore been forced to reconsider my earlier position regarding early mortgage payoff.
Now before you accuse me of imitating the infamous arch-villain Two-Face, let me say that I have not yet abandoned my original position. After all, I have been paying down my mortgage for over 12 years now and, as my original analysis showed, by doing so I easily beat the stock market over that same time period.
But until I get a little more clarity as to what is going to happen with respect to inflation, I am hedging my bets for awhile…
Sitting On The Fence
That’s right. Until I get more clarity on the inflation situation, I am now putting the money I would normally be applying towards extra principal payments on my mortgage into a high-interest savings account. For now, the money in that account will be considered untouchable; after all, the money is still earmarked for additional principal payments.
I’ll continue to reevaluate the threat of inflation over the coming months and, if and when I become convinced that the Fed somehow managed to pull a rabbit out of the hat with respect to containing inflation, I will take all of the money I’ve saved in that savings account and immediately apply it towards the mortgage.
On the other hand, if and when I become absolutely certain that the government is indeed content to let high inflation solve its massive debt problem, I will immediately put all of the accumulated money into some inflation-resistant vehicles like real estate or gold.
Until then, I’m sittin’ on the fence.
I’ll let you know which direction I go when I finally decide to get off.
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