The paleo and primal diets have become quite popular.  There is a big overlap with libertarians.  I suppose that libertarians would be attracted to the paleo diet because it is somewhat contrarian and goes against the establishment line on diet.

As Gary North has said, I think the paleo diet is not properly named.  I can understand the name and the appeal, but it really isn’t that accurate.  The paleo diet consists of eating natural foods like meat, seafood, vegetables, eggs, and fruit and nuts to a lesser extent.  You can eat saturated fats.  Most people can eat as much as they want, as long as they stick to the menu.  You aren’t going to get fat by eating another plate of vegetables.

This is not really a caveman diet because cavemen were lucky to find any food.  Thousands of years ago, it was a struggle just to put food on the table (or whatever they ate on).  There was no refrigeration, unless it was really cold outside (and then you had other problems).  There certainly was no grocery store.  For this reason, I don’t think bread was a bad thing.  Give me a choice between eating bread and starving, and I will choose the bread.

But if you live in a half-decent country today, then food is mostly abundant.  You can basically eat all of the meat and vegetables that you want, assuming a modest income from somewhere.

My diet right now is mostly paleo-primal.  It is more for health reasons than weight reasons.  Perhaps I will tell my story at some point in the future.

Interestingly, Panera Bread now has a hidden menu that you can order from.  While it is still fairly limited, it is basically a paleo menu.  I had the Mediterranean chicken salad there recently and it was quite good.  Karen DeCoster recently pointed out this hidden menu on the LewRockwell.com blog.

When I tell people about the hidden menu, they wonder why it is hidden.  I have given this some thought and I can only speculate.  Panera Bread has a niche of bread and pastries.  This stands for everything that is opposite to the paleo diet.  I don’t think they want to advertise the paleo diet, as it would be advertising against their very brand.

On the other hand, it makes sense that Panera Bread would offer paleo meals.  It is like McDonald’s offering salads.  They understand that not all individuals in a family are the same.  Sometimes the family wants to go to a particular place, but it makes it hard if one person in the family is trying to eat healthy, or just a particular way.  It is providing options.  It shows that the paleo diet is becoming more popular.

I don’t think the paleo diet is just another fad.  I’m sure people will take it and tweak it, but I think the general basis of it will stay around.  Americans have an epidemic of different diseases and a huge factor in that is diet.  When more Americans start eating paleo, or at least cutting back severely on high carb foods and processed foods, then we will see a decline in auto immune diseases, psychological disorders, and other health problems.

I celebrate Panera’s hidden menu.  It simply means that they are responding to market demand.  I look forward to more restaurants doing the same.

We see great looking celebrities in magazines and on television, and many people want to be like them.  Not only do people want to look like a supermodel, but they also want the lifestyle of the rich and famous.  I can understand the rich part, but not so much the famous part.

We also see successful (at least as defined by money) investors and entrepreneurs.  Many people aspire to be like them.  Again, I can understand wanting to be rich, especially if it is for the right reasons.  Having wealth means that you have a certain element of freedom that most others don’t enjoy.  It allows you the opportunity to focus on what is most important to you, whether it be spending time with family, pursuing your calling in life, relaxing, or any combination of these and other things.

It is important to give yourself a reality check though.  There is certainly nothing wrong with aspiring to be rich, but the chances of becoming extremely wealthy are almost zero.  You are almost definitely not going to be one of the rare billionaires in this world.  You are probably not going to be a decamillionaire (assuming no mass inflation).  You can become a millionaire with some realistic expectations.

It is not a good idea to look at someone like Donald Trump or Bill Gates or Warren Buffett, at least not in people to copy.  Most really wealthy people had a combination of things going for them.  Many started with money in the family in the first place.  Many were in the right business at the right time.  Many took huge risks.  Almost everyone had a combination of good timing, good luck, and taking an opportunity when it presented itself.  And, of course, there are some people who just have a unique skill, like singers and athletes.

You can only control what you can control.  It is true that you have to make your own good luck, at least in a way.  But this doesn’t mean you should take foolish risks.  For every really wealthy person out there, there are probably another thousand or more who failed miserably.  While there is nothing wrong with failing in starting a business, it isn’t good when it takes most of your money away from you, unless you started with almost nothing.

There are a lot of people who take major risks with a lot of money.  You hear mostly about the ones who made it big.  And it doesn’t really matter much whether they made it big through luck or wisdom.  The point is the statistics.  Most people who take major risks with a lot of money, end up losing that money.  There are probably ten thousand restaurant owners who go out of business every year and that is in just one sector.

I think it is better to emulate someone that you can actually realistically follow and expect to achieve some success.  You are not going to be the next Steve Jobs.  But you could be like the guy in your town who bought residential real estate when he was a young adult and now owns 20 houses free and clear and makes $200,000 a year in net profit.  You could be like the guy who was a plumber for 10 years before starting his successful business that brings in over $1,000,000 per year now.  You could even be like the office worker who saved 15% of his income every year and made smart investments and paid down his mortgage.

Most rich people do not have a glamorous story to tell.  They stuck to their knitting.  They made a plan (even if not a great plan, it can always be revised), they took smart risks, they put in a little extra time, they saved some of their income, and they took action.

If you really want to figure out how to be successful in terms of making money, then talk to ten people who are well off and ask them for some secrets.  You might be surprised how many will share their story.  Meanwhile, ignore the celebrities and the super rich.  And if you are going to make a big investment in a startup business, then do most of that investment with your time and very little with your saved money.  You are not going to accumulate wealth by destroying what you already have.

So, it seems a little early to talk about this.  We just finished an election with Obama winning another 4 years.  It shows how pathetic Romney was that he couldn’t beat a sitting president with a struggling economy and high unemployment.  And the Republican nominee couldn’t attack Obama on his most vulnerable issue (Obamacare), because Romney enacted the equivalent in Massachusetts.

While 2016 is far away, it will probably be less than 2 years when we start to hear about exploratory committees and listening tours.  Assuming Obama doesn’t nominate himself to be dictator, we will have several candidates from both major parties.

It doesn’t seem to matter much who is elected president.  Whatever the person says on the campaign trail, usually means nothing once they are in office.  Most of the candidates are vetted thoroughly and they will go along with the establishment, once in office.  If they split with the establishment, then they end up like JFK.

I do think we will see a difference in candidates in 2016, if in rhetoric only.  The Republicans have been putting up Republicans who don’t exactly fit in with the so-called conservative base and it hasn’t worked out too well in the presidential elections.  While I am sure there will be many different types of candidates running for the Republican nomination the next time around, I can actually envision a Tea Party favorite getting the nod.

There are two particular names that stand out to me.  They are Marco Rubio and Rand Paul.

Rubio is a great talker.  He is a lawyer and knows how to come off sounding good.  He is extremely articulate.  When it comes to economic issues, he comes across as favoring free markets and smaller government.  I have no idea if this is an act or not, but we do know what happens when people get into a position of greater power.  Of course, outside of economics, Rubio has been terrible on foreign policy and civil liberty issues.

Rand Paul is also a good talker.  Perhaps he is not quite as suave as Rubio, but still pretty good.  He also appeals to the conservative, small government types.  He is mixed with support from libertarians.  Personally, I could not support him, unless something drastic were to change.  He is too political.  I cannot trust him the way I trust his father.  I don’t know if Rand Paul would be principled enough to stand up for liberty if he were elected president.

I am also afraid of the Reagan syndrome with both Rubio and Paul.  They are good talkers and they sound great to the libertarian when they are talking about smaller government and personal responsibility.  This was Reagan.  But when Reagan was in office he was not good for liberty.  Perhaps he wasn’t as terrible as Obama, but at least Obama has strong opposition from the conservative and libertarian side.  Reagan somehow got a pass.  He was good when it came to lowering marginal income tax rates.  But he also raised other taxes.  And the spending and deficits went up significantly under Reagan.

I could see Paul or Rubio getting into office and the left having a field day.  They would be talking about unrestrained capitalism, while the policies would still be big government.  And who knows what the economy will look like in 4 years.

It seems that Americans have a certain threshold for big government.  After 4 years of Carter, with high inflation, high interest rates, and high unemployment, Americans wanted a smaller government message.  I think after 8 years of Obama, and probably a disastrous economy, Americans will be ready to hear that message again.  I wish it would be someone like Ron Paul, but unfortunately, it is more likely to be someone like Rand Paul or Marco Rubio.

The FOMC has released its latest statement.  Nothing much has changed from its previous statement.  The Fed will continue to buy $40 billion in mortgage-backed securities per month and $45 billion in longer-term treasuries per month.

If the Fed follows through with these statements, then it will mean an additional $85 billion per month will be added to the adjusted monetary base.  The FOMC statement says that it is maintaining its policy of rolling over the maturing debt, including the mortgage-backed securities.  In other words, it will not allow expiring debt to decrease the monetary base at all.  It will keep reinvesting the principal amounts, while adding an additional $85 billion per month to its holdings.  Over the course of a year, this will add up to about $1 trillion.

The FOMC announcement came in the afternoon, which was preceded that morning by news that the 4th quarter GDP in 2012 (annualized) is being estimated at negative 0.1%.  So with all of the talk about seeing signs of improvement in the economy, there was actually a slight retraction in the last quarter.  While I have my issues with the GDP as an indicator of economic growth, there is some validity to it.  It is quite telling that the politicians can’t even get their own statistics to tell a positive story at this point.

The FOMC statement also said that it would keep the federal funds rate at between 0 and a quarter of a percent.  This is basically meaningless, especially when commercial banks are sitting on huge piles of excess reserves.

The new GDP estimate is actually being taken as some as good news, because it means that the Fed will keep pumping new money.  Of course, these people have their heads screwed on the wrong way, at least when it comes to economics.  The continuation of Fed pumping means that they are kicking the can down the road further.  It is delaying the inevitable and making it worse.  It is allowing the government to spend vastly more than it could without the Fed’s help.  This higher spending is misallocating resources and hurting savings and production.  It is making us all poorer.

Since the Fed’s policies are unlikely to change any time soon, we can expect more monetary inflation.  While it is impossible to know how long this will take to lead to significantly higher consumer prices, it will happen eventually if the Fed doesn’t stop.  There will also be asset bubbles.  This could be stocks, real estate, oil, or gold.  It could be all of them.  I think gold investments are the safest bet right now, but some exposure to all of these assets may not be a bad idea at this point.

While there is no way that anyone can predict the future, and Austrian school economists, of all people, should know this, it does not stop many Austrians from making predictions.  A couple of common predictions amongst Austrians is that we will eventually see higher interest rates and higher consumer prices.  There is certainly disagreement about the timing and about the severity, but there seems to be general agreement that both are likely to go up in the future.

Of course, there are many factors that will affect the overall economy, and in particular interest rates and price inflation.  It matters a great deal on what Fed policy will be going forward.  It matters on what banks decide to do and how much they lend.  It also matters what billions of people in the marketplace decide to do, including their habits of saving and spending.

With that said, I tend to agree with the consensus that interest rates and price inflation are both likely to rise in the somewhat near future (probably less than 5 years, although I hate giving predictions with time frames).  However, I have been against the idea of shorting bonds, which would be betting on higher interest rates.

As I write this, the 10-year yield is near 2%.  While this is really low, it is up a little bit from where it was.  So is this the start of rising interest rates?

I still don’t think so and here is my main reason.  The price of gold and the consumer price index are both signaling that imminent price inflation is not a problem.  This could certainly change very quickly at any time, but there just isn’t high consumer price inflation right now.  Prices at the grocery store may be going up, but the average prices are probably not going up at double digit rates (on an annual basis).

While I can’t predict the Fed’s actions with certainty, I can take a pretty good guess.  My guess is that the Fed will continue its money creation in one form or another, as long as price inflation is seen as relatively tame, although there may be short periods where it stops.  And as long as the Fed is buying government debt and mortgage-backed securities while price inflation is low, then interest rates are not likely to rise significantly.

For that reason, I believe that we will not see significantly higher interest rates until we see more signs of price inflation.  This means that we will have to see signs in the way of a higher consumer price index or a significantly higher price in gold (and probably silver too).

Once higher price inflation does become more evident (assuming that happens), then it will be time to take a look at shorting the bond market.  At that point, there are two factors that could drive interest rates higher.  One reason is that the marketplace will demand higher rates to compensate for the threat of inflation.  The other reason is that the Fed may have to scale back or stop its buying of government debt (to save the dollar), thus reducing demand for bonds and causing higher rates.

In conclusion, watch the price of precious metals and watch for changes in the consumer price index.  These are likely to be your best indicator of when you can expect higher interest rates.

As I write this, one ounce of platinum is going for approximately $1,669.  One ounce of gold is going for approximately $1,656.  While platinum has historically been worth more than gold, that has not been the case in the last couple of years.  It has just been in the last couple of weeks that platinum has been trying to overtake gold.  I actually wrote a couple of posts on this back in 2011, saying that it might be a good time to look into platinum, although the price would have been slightly higher then than it is today.

I much prefer gold over platinum in an investment portfolio.  I also prefer silver over platinum, although to a much lesser extent than gold.  With that said, I am not against a little speculation in platinum.  It is still basically on par with gold, so if the price adjusts to more historic norms, then platinum could pay off.

Of course, there is no magical ratio that has to hold.  If you are familiar with precious metals, then you may hear about the ratio of the gold price to the silver price.  While it can be a useful tool, there is no guarantee that some particular ratio has to come into effect in the future.  There is no guarantee that the ratio has to return to its historic average.  So the same goes for gold and platinum.  But again, it can be a useful tool and tell us that perhaps platinum is undervalued as compared to gold, if the price ratio returns to more of an historical average.

While gold and silver tend to move in tandem (with silver having more volatility), there is less correlation with platinum and gold.  Platinum has more industrial uses.  Gold has a history of being used as money.  Central banks do not accumulate platinum, at least to my knowledge.  This has actually favored gold in the last few years because governments and central banks are buying gold more than they are selling.

If you want to speculate in platinum, here is my recommendation.  With the price where it is right now, I would say it is reasonable to own one ounce of platinum for every $100,000 you have in net worth (excluding equity in real estate).  That would put your platinum holdings between 1 and 2 percent.  If you don’t want to actually hold the metal, you can buy PPLT.

Although gold and platinum are not as highly correlated as gold and silver, I don’t expect platinum to do poorly in the future, especially if we don’t have a deep recession.  One thing that platinum and gold do have in common is that they cannot be made on a printing press.  As more Fed dollars flood the system, the nominal price of platinum and gold are both likely to go up.

There is a report out that households in Greece suffered an annual drop of 10.6 percent in disposable income in the third quarter of 2012.  This article says that “Greek austerity policies cut Q3 household incomes”.

Greece is now a symbol of the end result of a welfare state.  The people of the country allowed a government that promised big benefits to people, while trying to pay for it with high taxes.  In the long run, the promises just couldn’t be kept.  They were not possible.  Now their day of reckoning has come.

In America, we sometimes hear people say that we need to fix our spending and debt problems or else we will end up like Greece.  Actually, it is a reasonable statement, although there are major differences between the countries.  Unfortunately, the U.S. has its own central bank to print money and can therefore make the game go on longer.  But it can also make the problems bigger.

The U.S. also has far more wealth than Greece to start with, so there are more resources to be consumed.  Hopefully America will not get to this point of consuming most of its resources.  The good news is that the American people are much more entrepreneurial and individualistic than the average Greek.  And while many Americans look for government handouts, it is not nearly to the same extent as in many European countries such as Greece.

People can blame “austerity” all day long on Greece’s problems, but they simply don’t understand what they are talking about, unless they are outright lying.  Austerity is not causing Greece’s problems any more than a wet sidewalk is causing it to rain.  The so-called austerity in Greece is essentially being forced on the people there because of the situation there.  They have consumed their resources and have almost nothing left to consume.

This is why today’s Keynesians are a joke.  They think we just need stronger demand to drive the economy.  You don’t think that the Greek people are demanding enough?  Many people in Greece are living in virtual poverty, barely being able to put food on the table.  Is this due to a lack of demand?

It is obvious that the people there have consumed their resources and their productivity has diminished dramatically.  Once you have consumed your previously saved resources, then there are no more resources to consume anymore, other than those currently being produced.  The low production is due to government policies, which in many ways reflect the mentality of the general population.

The majority of the population, while they are not necessarily getting what they deserve, are getting what they asked for.  Actually, they asked for the impossible of endless benefits.  But they are getting the government that they asked for.  And at this point, it doesn’t matter who is elected or who is in power.  There simply are not many resources to go around any longer.  Politicians can’t magically create food and clothing for the population out of thin air.

The one other point here is that a big government debt is not the most harmful to future generations.  It is the most harmful to people here and now.  It reflects big spending by government, which means a massive misallocation of resources.  It means less production.  It means a lower standard of living.  It can mean major poverty, as we are seeing in Greece right now.

If the Greek people want to recover, they must end their government welfare state.  They must get back to free markets, which will encourage production and savings.  It will set a base for future economic growth.  Until this happens, I’m afraid that the Greek people will suffer greatly, at least for those who don’t move away.

The Republicans caved in once again, agreeing to suspend the debt limit until mid-May.  They are kicking the can now so that they can kick it again in a few months.  Perhaps they will end up agreeing to some future spending cuts that are not binding and are not even actual decreases in spending.

In any case, I know there is a lot of talk about the massive debt.  It is certainly a major concern, but I think it is more of a symptom than the actual illness.  In some ways, the debt itself is even more symbolic than anything.  The true problems ahead will not be because of the massive debt.  The problem is the dependency on government.

While Mitt Romney talked about 47%, there is actually a far greater percentage who are dependent on government.  I am not saying anything negative about these people.  It is most of us.  Most people have been dragged into the situation, especially since they are forced to turn over a good portion of their money.

People dependent on government include Social Security recipients, food stamp recipients, farmers, government contractors, people on Medicare and Medicaid, parents who send their kids to government schools, military personnel, and millions of other government workers.  These are just a few of the major categories, but there could be a list of hundreds of categories of people dependent on government in some way.

The politicians have made it this way on purpose.  It helps perpetuate big government.  Most people say we need to get to a balanced budget, but they also don’t want their favorite programs cut.  It is impossible to do both, so the politicians choose the side of big government, which is to keep spending.

While Americans will tolerate big deficits (even if they say otherwise), they don’t generally tolerate extremely high taxes.  It seems like the federal government is unable to go past a certain threshold, which is approximately 20% of GDP.  Beyond this, Americans will revolt.

When the can can’t be kicked any longer, Congress will have to cut spending.  This will probably only happen when we see higher price inflation and the Fed is forced to save the dollar and stop buying additional government debt.  When Congress is essentially forced to cut spending, it will be very painful for a lot of people.  It will be painful because of their dependency on government funding.

You can tell people all day long that they will be better off in the long run, but they do not want to feel immediate pain.  Most people try to defer the pain, even though that can make it worse.

If people were not so dependent on government, it would be easier to cut spending.  Then the debt wouldn’t be much of a problem.  But the debt can be dealt with anyway.  Default is always an option, even if it is a painful one.

The only way we are going to see significant improvements in the economy, barring some technological miracle, is for spending to go down.  The government has to stop spending and misallocating resources on a giant scale.  The government bubble must pop.  Only then can we have real and sustainable growth that leads to a significant increase in our standard of living.  It is not a matter of reducing the debt as much as it is a matter of reducing spending.

Looking at America, or perhaps the whole planet, I feel like I’m watching a bad movie.  Or perhaps a frustrating movie is a better description.

The government makes life so much harder for virtually everyone than it needs to be.  We have more pain and suffering because people have allowed governments to have such extensive powers.  We are poorer because of it.  Even most government employees, while seemingly benefiting in the short run, are much worse off in the long run with big government.

It is frustrating because there is a small (albeit growing) group of people who see it.  They are trying to tell the other innocent people that they are being taken advantage of, but the people do not want to listen.  It is like a frustrating movie because the villain (the government) is wearing a mask and pretending to be a good guy.

Imagine a Superman movie where Lex Luthor has dressed up as Superman.  He is manipulating Lois Lane into doing all kinds of evil things.  He keeps reassuring her on how caring he is and what a good guy he is.  Meanwhile, Lex Luthor has changed Superman’s identity and made him powerless.  He is trying to tell Lois that he is the real Superman.  He is trying to tell Lois not to listen to Lex.  But this just aggravates Lois more and makes the real Superman look like a bad guy.

It is frustrating for me to watch Americans (and people throughout the world) support the very people who are bringing misery to their lives, and in so many different ways.  Even most people who say they are mad or fed up with the politicians, are still supportive of the government.  They will say bad things about the politicians, but they will keep re-electing them.  And worse, they will keep supporting many government programs, thinking that we would all be in trouble if not for certain government expenditures (when in fact the opposite is true).

It is frustrating for me when I tell someone that we need to drastically cut government spending and they think I am the bad person.  They think I am the one who doesn’t care.  Just because I am against government education, I must be against all education.  Just because I want to end the drug war, I must be in favor of everyone taking drugs.  Just because I don’t believe in government welfare, I must be against all forms of welfare and charity.

Meanwhile, most people don’t understand that when they are supporting government, they are supporting the initiation of violence.  They do not understand that they are supporting their own demise.

How do I know that most people support government, even if they don’t say so explicitly?  It is because there are only 535 people in Congress, 1 president, and 9 people on the U.S. Supreme Court.  Meanwhile, there are over 300 million people living in the U.S.  Even if you count all of the government agencies, the people still outnumber the government employees by a massive margin.

This being the case, there is no way that so few people could rule over so many without the consent of the many.  The government’s power rests on this consent.

I am screaming at the top of my lungs to the masses that they are being swindled.  They can easily throw off the politicians and live free, but only if they desire it.  I try to tell them, but they laugh at me and make fun of me.  They tell me I’m wrong.  Certainly not all people, but enough of them.

What more am I supposed to do?  All I can do is keep repeating the truth and hope that more people listen.  It may be frustrating, but that is all I can do.  That is all that any libertarian can do.

I recently received a comment from a post I wrote last month called “Real Estate in an Inflationary Environment”.  That post was in response to a different question.  Occasionally I’ll get a good question that I think others might find interesting, so I turn them into a post.  This is one of them.

The comment was as follows:

“I came across this (http://goo.gl/vBtxt) website while doing some real estate research online. The case is made that the real threat we face is deflation rather than inflation because the vast majority of money in circulation is actually credit which cannot possibly be paid back in full by everyone. So if I understand it at all, the claim is that eventually a great deal of this “money” will implode as people foreclose, default, etc. This makes sense to me. 

It would seem that it would take enormous amounts of monetary inflation just to offset that, which is what the intent it now I would assume. 

If this thesis holds any water that would make buying a home right now quite risky. I always appreciate your take on this topic, so I’m curious what you think about this view. Is there anything to this? How does this threat factor into buying a home now? I am considering buying a second home as a single family and moving out of the duplex I own and occupy now, and renting both units out. 

Thanks.“

Someone who expects deflation in the short run is taking a different view from what I have.  I am not saying that person is wrong.  It is just that I give a higher probability to inflation in the near future, given the analysis I have done.

One area that I often disagree with deflationists is the inevitability of it.  The comment above says that “the vast majority of money in circulation is actually credit which cannot possibly be paid back in full by everyone.”  I think it is playing technical word games to say that most of the money in circulation is credit.  If this were the case, why has there been virtually no deflation for the last 70 years?

Again, I’m not saying a deflationary situation is impossible or won’t happen.  I just believe that we will see much higher price inflation before we see anything resembling a serious deflation.

There is one thing that Ben Bernanke understands.  He said in a speech back in 2002 the following:

“But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.“

The Fed can always prevent deflation.

The problem for the Fed is if it hits recession/ depression conditions at the same time as high price inflation.  We saw that back in the late 1970’s and the Fed was forced to save the dollar and bring on a deep recession.  While this could certainly happen again, we haven’t hit high price inflation yet, so I would expect the Fed to keep creating new money out of thin air until it is forced to stop by high price inflation.

So how does all of this fit into real estate?

I recommend buying investment property that you can rent out.  It is best to buy something where you have positive cash flow.  If you don’t have to sell it, then deflation does not matter to you in the short run as far as housing prices go.  Your only worry is about the rent.  But if you have positive cash flow, then it gives you a little bit of a cushion for lower rents.  The good thing is, your costs should also be lower with deflationary conditions.  Taxes should be lower and maintenance costs should be lower.  The one thing that won’t go down is your fixed rate loan, or at least until you pay it off.

I am not one of these people who advocates that you leverage everything you can.  While I am not against taking out a mortgage, I am also not against paying off your loans.  If you buy and hold a property for long enough, you will eventually pay off your loan (or hopefully your renter will), assuming you don’t refinance to longer terms.  I actually think this should be the ultimate goal of every real estate investor.  Once your loan is paid off, then your cash flow will increase dramatically.

If you are concerned about deflation and you still want to invest in real estate, then paying off your mortgage should be your primary goal.  If you have a mortgage rate of 4%, then every extra penny you put into your principal balance is the equivalent of a 4% return on your money.  This is a hedge against deflation.

In conclusion, I don’t think a major deflation is likely, at least not in the next several years.  But even if you disagree with me and think deflation is likely, it doesn’t automatically mean that you shouldn’t look at real estate investing.  It just means that you should try more aggressively to pay down your mortgage before the deflation hits.