Debt, debt and more government debt

In 2008, the sum of all U.S. government, private and corporate debt was $31.7 trillion. It is now $36.4 trillion, according to the Federal Reserve Bank's statistics, an increase of $4.7 trillion in the last four years. Looking into the statistics further, we see that although the total debt has increased by $4.7 trillion, $4.6 trillion of that increase is federal government debt.

The private sector has gotten its act together during the last four years; the federal government has not. It has exacerbated our position by increasing total U.S. debt by 14%. In that same period of time, federal government debt, alone, has risen 90%.

How does this affect the markets, what does the Fed intend to do about it, and how will that affect our investments?
At this point, U.S. debt is so great that the only thing to do is inflate it away. In order to accomplish this, the government needs a constant 4% to 6% inflation, annually. The Consumer Price Index (CPI) rose 3.1% in 2011, up from 1.5% in 2010. So, we can see the direction inflation is headed.
Four percent inflation, annually, would reduce the principal purchasing power of our debt by 35% in only 10 years, and 6% inflation would reduce the purchasing power by 45% in only 10 years. Since 2002, our purchasing power has been reduced by 25% because of inflation.
Although inflation is already a part of our economy and our life, the government will look to ratchet it up and make it more “acceptable” to voters, sometime in the next few years. There is no alternative.