What crisis has your attention these days? The Delta variant, fire season, housing shortage, ammo shortage, labor shortage, fuel prices, food prices, wokeness? Inflation has mine.
Remember being nagged by your olders and wisers: “Don’t spend more than you earn?” Plus “Save for your future?” That’s great advice, or was, back when thrift was actually rewarded, and delayed gratification paid off in the end.
America never saw much inflation prior to 1971, when Tricky Dick Nixon was pressured into floating the U.S. dollar in 1971 away from its $35 per ounce gold basis.
Kaboom! Immediately after came Nixon’s “wage/price freeze,” Gerald Ford’s “Whip Inflation Now” buttons, and Jimmy Carter’s “stagflation.” So, by 1981, our 204-year-old republic piled up a trillion dollars in cumulative national debt – which seems trivial today, but isn’t.
In 2020 alone, Congress piled another $3.1 trillion in on America’s “plastic,” not gold card – leaving a debt balance of $26.7 trillion. Hey, the dollar isn’t worth what it used to be, $100 in 1971 is worth $654 today.
Now, if you SAVED that $100 in a nice compound four-percent passbook, you’d have about $739 – but when was the last time anyone’s “savings” account paid that much?
Or any other investment? In real estate (no mortgage), up up and away goes the appraisal (yay!), AND your property taxes! When you finally sell, brokerage rips six percent off the top, and you’ve got 15 plus five percent capital gains taxes due. Will you break even on that investment?
How about stocks? More important, do you have ANY control over what decisions the mutual fund managers (or inside traders) are making, or protection against their mistakes?
Gold? In 1971, $35 an ounce. Today, $1,780 an ounce, up $26 from yesterday, but down from last August’s all-time mark of $2,067.15 – meaning 35 bucks gets you a whopping, um, 0.01966 ounce – one fiftieth. Seems all those nut cases hoarding gold aren’t so crazy after all, are they?
In general, inflation erodes current and future wealth, but not uniformly. If you “save,” and your interest rate is less than inflation, you lose.
Even if you spend it as fast as it comes in, save nothing, price inflation still hurts your immediate earning power unless you get immediate, bigger pay raises. Even worse, if you don’t spend it RIGHT NOW, prices might go up again! You lose again.
On the flip side, if you borrow, inflation erodes the wealth of your lenders. You’ll be paying them back with devalued money, IF you have a fixed interest rate that is less than inflation. Right now, 10-year Treasury bills are paying about two percent. Inflation is at six or so. Who is losing? You, from both ends, while the federal government parties on.
Remember that $26.7 trillion debt? Those “investing” in that debt are going backwards faster and faster the longer they carry it. They know it, Congress knows it, we know it – the only reason investors tolerate losing is they are “guaranteed” the “face value,” which, even if eroded, is theoretically protected from losing everything overnight by the (ahem) “full faith and credit of the United States of America.”
Even slicker, Uncle Sam’s Federal Reserve is “issuing” money and lending it out to bankers (not you, peasant) at practically zero percent. These bankers then RE-lend to you, but they’re smart, charging interest enough to cover forecasted inflation at a minimum. If you wonder why there are so many “variable” mortgages compared to few “fixed” mortgages, and why credit card interest is even higher, and even more variable, and why so many formerly-wise investments pay off poorly or not at all for average Americans, now you partly know.
Finally, keep in mind that our dollars, backed by gold, or made of meltable silver, still retained tangible value even in a worst case. Fifty years later, our “wealth” is ephemeral, digits, dots and commas in a drive somewhere, hackable AND inflatable by anyone or any entity able and willing to do so. Could you prove yours is yours if needed? Have faith, stalwart ones!
My faith leans toward gold these days. Republicans? Only over Democrats, barely.