“Over the last 100 years, it(US Dollar) has lost over 96 percent of its value.”
Stop. Re read this statement. How does this impact your daily living? How does it impact your ability to build wealth?
With regards to daily living, the ability acquire goods and services has become increasingly more difficult. Prices of these goods and services are on the rise, but in reality, that isn’t the case. The reality: As more fiat currency units are being printed, the value of each unit declines. This means it takes more currency to purchase the same goods. Since goods are sold in terms of prices, it gives the illusion prices are rising.
When the value of the currency is in decline, concomitantly causing rising prices, people have a shortfall when it comes to purchasing goods and services. Banks have provided a remedy to this problem: The expansion of consumer credit. The proliferation of consumer credit has expanded, to wit, sub prime credit. The expansion of sub prime credit has allowed individuals to bridge the financial gap between their income and the rising prices of goods. Since wages are not rising at the same pace as goods and services, for many this is a major issue. Sub prime default rates are on the rise, and individual savings are almost nonexistent. When emergencies occur, the use of credit is the norm, not savings.
Wealth accumulation is a treacherous endeavor in an inflationary environment. When individuals take the newly minted fiat currency and purchase assets, the prices of those assets are subject to the same increase as consumer goods. For example, when one purchases over the counter equities, as an investment, the price is relative to the declining value of the currency.(along with other economic factors.) In reality, the gains, for these paper assets are nominal, as the price increases simply reflect the devalued currency. Millions of middle class Americans are placing their retirement savings at risk, yet have no risk mitigation strategy against this thief known as inflation.
Oh, let us not forget taxation. Taxes are assessed on the prices of the goods or assets. As prices investment equities rise, people are excited…until taxes are levied. The net impact, price gains of the assets with taxes, is negligible…making it more difficult to invest for the long term.