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Inflation? Deflation? Tossing the coin

ByJohn B. Pinto

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In light of recent reports from Washington that “We’re printing money like there’s no tomorrow,” you could draw one of two conclusions about the economic path ahead and the impact on your practice, depending on which macroeconomists you follow.

Conclusion one:

Washington is taking a serious, proactive approach to limiting the recession’s depth and is more concerned about the adverse impact of deflation than inflation. Therefore, monetary easing — and beyond easing, frank expansion of the money supply at the risk of sparking inflation or even hyperinflation — is an acceptable gamble. If you thought this is what’s happening and that deflation was in the cards, you might:

• Harbor cash and cash equivalents, which are increasing in value.
• Delay purchases or at least negotiate all purchases vigorously on the assumption that prices will soften.
• Avoid taking on any debt that would have to be paid back in increasingly valuable dollars.
• Strongly expect deep rather than shallow fee cuts in 2010.
• Watch for signals that it will be acceptable to reduce staff wages.
• Make sure your facility lease contains not only an upward annual CPI, but one that works in the downward direction, too.

Or...

Conclusion two:

As a country, debt is rising fast. Our leaders have decided to inflate our way out of this debt problem (both domestically and internally) and at a faster rate than has always been expected. If you thought this was what’s happening and that inflation was in the cards, you might:

• Spend cash, which is worth more today than it will be tomorrow.
• Accelerate needed purchases because costs will only rise in the future.
• Take on debt because interest rates are only rising and because you'll pay it off in the future with dollars worth less than they are today.
• Assume that Medicare fees will not be slashed next year, but that the net effect will be less net after-inflation value paid per unit of service.
• Hold the line on staff wages, hiring staff who are more bonded to you and your mission than to their paycheck (as is often the case in a nonprofit foundation).
• Prepare for a kind of “pincher” effect in the future, with practices squeezed between fixed third-party fees and inflating practice costs.