Ever since the third stimulus check rolled up, everyone has been talking about inflation. A lot of news outlets say that the normal rate of inflation is two percent, but what does that really mean? Let’s start right at the beginning and explain things simply.
Let’s look at the price of a cup of coffee over the past fifty years. In the 1970s, a single cup of coffee cost 25 cents. Now, you can’t get it below a dollar and a half. Now, you might be thinking that 25 cents fifty years ago are the same as 25 cents today.
That’s not true. The coin stays the same, but the buying power decreases over time. Most people think of money as an objective asset, but that’s not the case. That’s why we used the example of a cup of coffee. Many economists use the example of a basket of goods to demonstrate the rise in prices.
The simplest definition of money is a store of value that can go through space and time. If you have a dollar, it needs to be worth the same in the United States and in Europe. Plus, you should be able to use the same currency tomorrow and a year from now.
There are a lot of things that go into the economy that is responsible for decreasing the value of a currency, and that’s why there are different forms of inflation. The best way to battle this phenomenon is by investing in precious metals, real estate, stocks, and cryptocurrencies. Depending on the type of person you are, you can put your money into one or multiple assets.
Why is it bad?
Let’s say that you’re a freshly graduated student that’s working an entry-level job. Most of your earnings go into paying rent, getting food on the table, and paying off your student loans. As time goes by, you want to progress further in life, and after a year, you find a job that pays better.
For that reason, you move to another apartment, and all of your other expenses start rising. The more money you make, the more you spend on the same amount of goods and services. It will seem like an infinite game when you’re playing against the rising rates.
Prices always rise whenever currencies lose their value, meaning that you’re going to be able to buy fewer products. This increases the costs of living for the general public. That swiftly slows down economic progress. Follow this link for more info https://thehill.com/opinion/finance/568739-brace-yourself-inflations-coming-back-stronger-than-ever.
The worst thing that can happen is artificially boosting the economy with a large supply of money which happens much faster than natural economic growth. This is a catastrophe that postpones disaster. This is exactly what the United States did by issuing out trillions of dollars out of thin air. We’ve yet to feel the consequences.
How can you fight against it?
The best way to fight against inflation is to invest in deflationary assets. Deflationary assets rise up in value and cost as time goes by. This includes real estate, precious metals, limited edition collector’s items, stocks, bonds, and certain cryptocurrencies.
Fifty years ago, the dollar was linked to gold. For every dollar bill issued out, the federal reserve needed to have an equal amount of gold in its safe. When that standard was broken, they started to print more money. However, one thing remained constant.
Gold remained valuable, and it’s always inversely proportional to the dollar. What does that mean exactly? Let’s say that a hyperinflationary crisis happens out of nowhere. When that happens, the entire stock market will crash, the prices of real estate will hit their all-time low, and almost all people will start panicking.
The only people that wouldn’t panic would be the ones who have investment finance gold, silver, and platinum reserves. Precious metals rise in price whenever the buying power of currencies starts to drop. That’s why plenty of new investors are putting their money into precious metals IRAs.
Your retirement is something that you look forward to because it’s the time when you rest from working your entire life. You combine your savings, insurance money, your IRA, and you go to travel and see what the world is made of. No one wants to keep working when they retire. That’s why investing in smart, time-tested assets is the best thing.
Have these things happened before?
Market crashes happen all the time. In fact, history is always bound to repeat itself in similar manners. It’s our job to learn from it and be able to handle the future. One of the best hypotheses that explain the relationship between the economy and inflation is monetarism.
If we go a few centuries back, the Spanish conquered the Inca and Aztec empires and came back to Europe with a lot of silver. That was instantly poured into the economy, and the value of their money dropped.
Prices immediately started rising because the supply of money increased drastically overnight. It’s never too early to start thinking about your future. The only day we can control is today and putting off something for tomorrow always slips your mind.
Making a committed plan and staying disciplined for years is the way to get rich slowly. Time is the only resource that allows compounding to work in your favor. For that reason, you need to start early and use strategies like dollar-cost averaging to make the most of your savings.