Three decades of debt

In my most recent post, I proudly declared my zero tolerance for debt. Afterwards I received the following anonymous comment:

"Alice, your sentiment is good and your self-discipline excellent.

However, you still have to find rental payments and you're attempting to store your wealth in the form of paper tickets (pounds) with very questionable long-term value. For somebody like you who is expecting inflation this strategy doesn't make sense."

The first point is easily handled. A mortgage holder rents the money; a renter rents the house. Only a renter can stop renting anytime she wants. If her salary increases, she trades up to a larger house; if her income falls, she downsizes. A mortgage holder is imprisoned in a world of duplicitous estate agents, rapacious banks, sticky contracts and a highly inflexible market.

The second point, however, is more problematic. What should someone do if there is a widespread expectation of future inflation?

To tell the truth, I don't have a good answer to this problem. In broad terms, buying real assets seems to be the solution. However, what assets should I buy, and when? I have a few answers but I don't feel confident about sharing them.

The comment hints at a deeper issue. If the inflation is likely to rise, then there is perverse incentive at work. It makes sense to stock up on debt and allow inflation to erode its real value. In contrast, savers will pay as the purchasing power of their assets are destroyed.

This is, in fact, the crazy world that New Labour and the Bank of England want to create. Quantitative easing, zero interest rates, and double digit deficits are all policies directed at one objective - inflation. There is a debate about whether these policies will work, and I happen to think they will. Nevertheless, there is complete clarity about what Brown, Darling and King want to achieve. On this point at least, we can't accuse them of dishonesty.

Having said that, I don't think the prospect of double digit inflation is enough to convince me to shackle myself down with a debt that will take me at least three decades to pay off.