What’s Up With Our Money?

I wish I would have made this video. It summarizes nicely what I’ve been saying on my show recently. The US dollar is dropping and has been for 100 years. It is the inflation tax.

• 1

  I think going back to the Gold standard is probably not realistic. Better to discuss the investment strategies relative to inflation (as the video does a great job of demonstrating with fuel and cars). Gold is only one hedge against inflation.

  Decade Assumption:
  http://inflationdata.com/Inflation/images/charts/Articles/Decade_inflation_chart.htm

  If you assume the next decade 2010 - 2020 matches the 1980’s of 5.55% what investment strategy would you take?

  Long Term Trend Assumptions:

  http://inflationdata.com/Inflation/images/charts/Annual_Inflation/annual_inflation_chart.htm

  Are we 4 years (starting in 2004) into a 15 year trend of rising inflation? If so the target Fed line of 3% or less is now in danger. What inflation assumption should the average investor now use in place of 3%? How about 5%?

  To complicate it more - Your inflation rate is different than my inflation rate (based on consumption patterns, age etc.). So can we even trust the CPI charts published? Each person should keep track of their own personal inflation (gas, beer, food - you know the staples). And DONT FORGET TAXES!!!

  Finally the brain teaser- from Edelman’s “The Truth about Money”. What must you earn to maintain your money’s purchasing power at 5% inflation and a 35% tax rate to break even?

  Answer: See the entire table (Figure 1-18) in his book

  a> 3.1%
  b> 4.6%
  c> 6.2%
  d> 7.7%
  e> 9.2%

  If your answer was d then you better retake the Risk Capacity Survey

  wizkid on April 7th, 2008
• 2

  I find all this Gold talk troublesome. For the average American, who buys Index Funds, what is this Gold Fever supposed to mean? Are we to start buying Gold at this point in time? One look at the 10-year price chart of Gold tells me NOT to do that. If Gold were to go back to its price just 3 short years ago, one would lose 50%.

  10 year gold chart:
  http://www.goldprice.org/gold-price-history.html#10_year_gold_price

  The alternative is, I call my Congressman and start lobbying for going back to the Gold standard. Trouble with that is, for every expert that likes the Gold Standard, there will be another equally reputable expert who DOESN’T:

  http://web.mit.edu/krugman/www/goldbug.html

  In conclusion, I’m sticking with my self-made SMILER portfolio of Index funds and trusting in the Greenback.

  ReadBuySleep on April 8th, 2008

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