Why our financial future is still at risk, according to Alan Greenspan — and how to protect yourself

ByJames Dennin

Prices in the United States are rising, quickly, while slow economic growth and the ballooning cost of entitlements remain a big problem for the country — and all Americans shopping at the store, or looking for jobs or higher pay.

Indeed, these factors are cause for caution about the future, former Federal Reserve chairman Alan Greenspan said during a Thursday speech at the Economic Club of New York.

Greenspan pointed to rising populism in Europe and the U.S. election of Donald Trump as signs that the working class is frustrated with stagnating living standards.

"What is becoming increasingly evident is that the vitality of our democratic institutions has become seriously impaired by this prolonged period of stagnation," Greenspan said. "It has spurred economic populism ... that has apparently currently gripped the United States and most of Europe."

The economist talked briefly about the threat of "stagflation," the economic worst-case-scenario where you get the double whammy of higher prices and lower employment — which creates a certain catch-22.

Monetary policy that keeps prices affordable tends to slow employment, while moves that improve growth (and hiring) tend to promote inflation, too.

While Greenspan said it's "too early to judge" whether the United States is on the brink of stagflation, he warned about a "false sense of recovery."

Greenspan, who has advised several presidents over the decades, served as chairman of the Federal Reserve for almost 20 years, from 1987 to 2006.

While Greenspan's analysis might leave you feeling worried — both as a worker and as a consumer — there are ways you can empower yourself now to protect against even the worst-case scenarios. In short, it's a good time to learn how to save more, spend less and grow your cash through investments.

Consider these strategies to protect your wallet. 

1. Double down on your debt

Higher inflation can be a blessing and a curse for debtors, depending on which kind you have. 

If you've got a big, fixed-rate loan — like a mortgage or even certain kinds of student debt — then inflation is arguably "good" for you, because you get to pay off your debt in decreasingly valuable dollars. 

But inflation cuts both ways, especially if you carry a credit card balance. Most credit cards have variable rates, meaning yours will go up as interest rates rise — and the Federal Reserve tends to raise rates during times of higher inflation.

If you're worried about your credit card debt, keep in mind that if you pay off your balance each month, rising interest rates can't really hurt you.

Andrew Harnik/AP

Of course, if you're struggling under a mountain of debt, that's easier said than done — so consider the "snowball" strategy of eliminating smaller debts first and larger ones later.

2. Spend less money — and bring in more

The easiest way to improve your cash flow without altering your lifestyle is to bring in more cash, whether by asking for a raise, taking on a second job or getting a little creative. For example, finding stuff to sell, from your old junk to personal assets, can be surprisingly lucrative.

But if a raise isn't in the cards at work — and you've got no way to line up an extra gig or extra hours — then your best strategy will be cutting costs.

In other words, it's as good a time as any to download a few coupon apps, start brown-bagging lunch and buying in bulk. A Today Show investigation suggests tires, electronics, batteries, paper cups and plates, medications and laundry detergent are the places to look for the best bulk discounts

Wilfredo Lee/AP

3. Profit from price inflation by buying TIPS

One option, which might surprise you, will actually let you profit from higher prices. Yes, you could put some of your cash into stocks — which tend to increase in value faster than prices of goods rise. But they tend to be risky.

A safer investment is Treasury Inflation Protected Securities — often called TIPS for short. Essentially, TIPS are government-backed bonds you can buy directly from the Treasury or indirectly through a broker.

What makes TIPS different from other government bonds is they have an underlying value that goes up and down with consumer prices

In other words, if inflation goes up, TIPS bonds pay a little extra — and holders have a little extra cash on hand to deal with those higher prices.

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