Financial Crisis
The Future of Money
What is our “financial crisis”? What will the financial future look like?
We have a basic assumption that “we the people” and the government are excessively in debt. This is probably true of almost all (major) nations in the world.
A financial crisis develops when debt can’t be paid.
What does the (fiat money based) “system” (essentially the government / Central Banks – depending on the nation they are the same thing) do about a financial crisis? They devalue the money. In other words they “print money”. In other words they create inflation.
Based on this, we can assume that we are only looking at the beginning of significant inflation for the USA (and the world).
Who gets hurt by this? Anyone lacking financial resources (essentially those who struggle for income to increase as fast as costs increase). Also “Creditors” (anyone with savings).
What doesn’t lose value? Hard assets like gold. Assets that aren’t valued in currency, for example stocks have a price per share, as the currency decreases in value the price of all shares of stock will increase in compensation for this. Keep in mind that financial people call stocks “equities”. Real estate seems like a good thing to own, except that it’s not very liquid, you can’t easily convert real estate value into buying the week’s groceries. Real estate may also fluctuate a lot in times of financial troubles.
Basically, as a private individual, not buried in debt, you want to evaluate “Will my income and assets adjust with the pace of inflation?”. Hint: savings accounts and fixed rate assets like CDs will not. Any financial institution which is paying you a higher rate of interest than the rate of inflation is at risk of going out of business (and thus a risk that you’ll lose your money). Stocks should, although the ride is likely to be very bumpy.
When does gold lose value? The conventional, simple answer is that gold doesn’t lose value. Gold retains value. However, I’m inclined to say that isn’t precisely true. The exchange rate (price) of gold will vary. What makes the price of gold vary? Primarily it is due to confidence, or lack of confidence, in the fiat money the gold is being exchanged for.
Currently we have talk of the government attempting get out of the current financial crisis by switching from dollars to cryptocurrency. That probably deserves an article of it’s own. It’s not clear how switching to digital currency would solve anything, but it sure does evoke fear of tyranny.
