I am puzzled by certain advice I hear from glass-half-empty financial commentators. Those are the people whose horizon is dominated by budget and trade deficits, environmental costs, unfunded liabilities, debt crunches, and weak job markets. I worry about the same things, so I read these people carefully.

Maybe you can help me understand their recommendations. An example:

“1. Get out of personal debt Being in debt severely limits your options during good times, and it is a positive destroyer during down times.”

“2. Get some inflation protection Nearly all governments, when faced with massive liabilities and debts, have opted for the same solution: print money.  So we can be pretty certain that we’ll see some quite solid inflation as we go forward over the next few years. So what is inflation protection?  It means holding non-paper-based assets.  Gold, silver, oil, grains, and base metals are a few examples.”

Why is this good advice? And why isn’t it contradictory?

1. If we liquidate savings and investments to pay off our mortgage, we’re a lot closer to being broke. How does having less cash give us greater options?

Say I get laid off – still a real risk for many. We have a lot less savings, can’t qualify for another mortgage and, in this market, can’t sell our house to raise money. Yes, we have no mortgage payments, but it’s cold comfort to own our house free and clear if we no longer have our savings cushion to pay all those other living expenses until I find a job.

2. I agree that if increased tax revenues from economic growth are not going to pay down our national debt, it’s likely the US will try to cut debt by reducing the value of the dollar through inflation.  But if the government is going to inflate away Treasury debt, why shouldn’t we let them do the same for our mortgage debt? What nicer way to pay off the bank than with the devalued greenbacks that result from inflation!

Heck, if inflation raises the value of assets and lowers the value of debt, we should be taking out a home-equity loan to buy gold. Right?

Help me out here.