If you are behind in your mortgage and owe more than your house is worth, or if you are in the real estate business looking for a way to make some money in 2008, then read on. I am discussing a crucial issue that affects

• Whether you buy another property or rent instead
• Whether you should save money or spend it all
• What should you do about credit card debts
• What will happen when you want to quit working and retire?

The Big Lie in what you read and hear about today is that you can save and invest and eventually retire.

Everyone under estimates the effects of inflation.

You can own your house free and clear and be forced to sell because property tax inflation means you can't afford to even pay the taxes on your house.

You can build a retirement nest egg but inflation means the money you save is worth a fraction of what you expected.

If you don't understand what is happening soon in the US (and most of the Western world) you can be broke and penniless. But if you do understand it, you can be quite successful even if you are broke today.

How inflation changes everything

Let's say you do save money. You could save $1 million. But 20 years from now, what will you be? A penniless millionaire.

$1 million in 20 years may be worth $200,000 today. That's assuming inflation is 10% per year. You think inflation is less than 10% per year? Well, the M3 broad money supply in the US is growing at more than 10% per year. The US government regularly lies to under-estimate inflation.

Inflation my be 8% or 10% but it sure isn't 5%. Not if you have to buy food and gasoline and heat your residence.

And it will get much higher. Because over the next 25 years, the greatest event in the history of mankind will happen: the retirement of a significant percentage of the workforce.

People who are working now support those who retire. Whether retirees collect social security and depend upon Medicare, or whether retirees also have a portfolio of stocks and bonds, the people working at the time you retire will be supporting you.

All you have when you have stocks or bonds is a claim on other people's labors. If you own stock in Google, you have a tiny claim on Google. If you own a bond, you have a claim on whoever issues the bond.

All these claims are paid by people working now (or whenever).

We are on the cusp of the Baby Boomers retiring. We go from 5 or 6 people working to support one retiree, to 2.5 people working to support one retiree.

Ain't gonna happen.

Just consider the obligations of the US government to pay retirees and you are looking at 6 times the annual output of the entire US economy.

AIn't gonna happen.

Instead, money will be printed. Obligations will be honored. But the value of that money — well, the value is not guaranteed.

How to take inflation into account by buying real estate

In the short run, real estate is horrible. In the longer run, real estate is great. When you borrow money over a long period of time, you pay it back in cheaper and cheaper dollars. This is the best way to benefit from the coming huge inflation we will all be facing. 

Income property, particularly…if you own an apartment building or houses that you rent out for a positive cash flow, you benefit because the depreciation shelters much of your income. Your renters make the payments. And rents will keep up with inflation over the long run, while you will be paying a fixed payment that is worth less and less. So in essence you will be paying almost nothing in 10 or 20 years on your mortgage, but collecting very nice rents.

Another way of benefiting from the great inflation is to own gold and silver, and stocks in gold, silver and oil companies.

Avoid bonds, savings accounts and such — you not only get an interest rate that is below inflation rate, but you also pay taxes on this phony income!

See Financial Freedom: Surviving the 2008 Meltdown for more.

I also recommend Dan Amerman's essays that point you in the right direction.

Watch this video on short sales and good credit

 Type In Your Name and Email and Immediately See This Video on Short Sales

Do you want to know the ins and outs of property short sales? Do you want to know everything about nine-day house sales? How about the best way to deal with taxes or keep those credit rating numbers high? Here's the video that will tell all. Never be concerned. I never give your email or name to anyone. Also, you can opt out anytime.