Inflation = Austerity = People Upset
There are essentially two paths to move down if you are a leader of the United States. The path of austerity which essentially refers to cutting spending and balancing the budget. In the pension world and entitlement world, it means making tough decisions to bring pensions and programs back to solvency.
The path that a politician typically chooses is the inflation route because the effects of it are more beneath the surface – or in the case where the effects are blatant (i.e. $10 gas), the causes can be debated. The politicians always choose higher prices over people in the street, although down the road, he might get both.
I think that no matter what path is chosen, whether it is austerity or inflation, the results will be the same. That result is a lower standard of living. Whether it is by the market forces forcing a correction and a decrease in the standard of living by deleveraging and a lower consumption rate, or a decrease in the standard of living by higher prices and thus people not being able to afford as much, the results are the same. A lower standard of living.
The Fed and the politician cannot fight it. They can prolong it or disguise it but it cannot be fought. Therefore, both inflation and austerity will result in people being upset.
How people choose to deal with it will be interesting. Some riot (French). Some will just deal with it and work through it. Some will make money during it because they saw the trends developing ahead of time.
What are you doing to prepare for both paths and the singular outcome?