One of the unintended, though predictable, consequences of the unprecedented rescue of the United States financial system is that there will be higher than average inflation figures for years to come. While it’s been popular to dispute the reported Consumer Price Index (CPI), the reality is that the marketplace doesn’t really listen to the reported stats. It reacts to reality. Your boss doesn’t walk into your office and say “Oh, CPI says I need to give you an x% raise this year to maintain your purchasing power.” and the grocery store doesn’t increase the price of a head of cabbage a few cents every month because the BLS came out with another report.

So we need to be proactive and be aware that inflation is a real concern, before it becomes front page fodder for newspapers.
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Between the various bailouts, rescues, and spending packages, the United States Treasury has been working overtime issuing debt. If you’re like me, you’re probably wondering how this is even possible and how the government goes about doing it. During the First World War and World War Two, we went through a similar period where the government needed to borrow a lot of money to help fund the war effort. That gave rise to the patriotic posters that called for ordinary Americans to buy war bonds to support our soldiers fighting the enemy on foreign soil. That same mechanism, public debt, is what we use today to help fund many of our programs. This makes it a prime topic for the third installment of the Foundation Series.

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I recently purchased a bunch of Series I Savings Bonds because of the favorable fixed interest rate (1.20% if you managed to score some in April 2008) and the favorable future inflation-pegged interest rate (~2.4%). The Series I is popular because you do get to lock in both a fixed rate plus an inflation based rate. The fixed portion is set when you buy it and the inflation portion is pegged to CPI-U. If you can get protection against inflation through a Series I, why does a Treasury Inflation-Protected Securities (TIPS) even exist?

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