Investing In Inflation

In a well run economy, yes, this is true. The value of money rises (which is good, otherwise capitalism would fall over), and the cost of living increases.It is bad for us only when the cost of living increases faster than the value of money rises.Inflation is not a bad thing: it is necessary in a growing economy. If inflation stops, we call it stagnation and it is as bad as too much inflation.Sometimes, inflation can form little positive feedback systems, leading to runaway inflation. This is bad because the amount of work you need to do to buy gasoline/whatever can end up increasing on a daily basis.Except the last bit - the amount of silver and the amount of gold you pay varies quite a lot. In 1910 1Oz of Gold would buy you 690 loaves of bread. Today, 1Oz of Gold will buy you like 390 loaves of bread. And the amount of work? Compared with the average working person in 1910, I do a lot less work and get paid a heck of a lot more. Maybe things are different in the US. Over short periods of a few decades, it is basically right, though bubbles come and go on many products. Bread could be found for like 10p a loaf for a while recently, now its ten times that cost. Production costs are as much a function of supply of materials as it is tied into the costs of energy. Precious metals are only somewhat associated with those things (such as mining costs). I know it sounds terrible, but you are too old to invest in precious metals. Ok, it's more complicated than that, but unless you are trying to make a killing with short term investments (high risk, and you don't have the luxury of risk tolerance), you'd be better served looking for high security but lower return potential.As it stands, demand is outstripping supply in gold so it is rather expensive, and it may continue to rise in price. However, the flip side is that at the moment people are buying lots of gold jewellery and if hard-up consumers cut down on purchasing jewellery then production might slow which will reduce demand on the markets which could lower the prices.As the link says, had you bought gold in the 70s you would have been laughing since the prices skyrocketed. However, in every decade there is somebody recommending gold for one reason or another - so you should be careful about claims that gold is the next big investment.Using approximate figures from wikiA $1000 dollar investment in 1940 would get you about
29Oz of Gold.
2900oz of Silver.
Selling those commodities in 1960 will get you about
$1100 for the gold
$2600 for the silverA $1000 dollar investment in 1960 would get you about
27Oz of Gold.
1100oz of Silver.
Selling those commodities in 1980 will get you about
$17000 for the gold
$17000 for the silverA $1000 dollar investment in 1980 would get you about
1.6Oz of Gold.
64oz of Silver.
Selling those commodities in 2000 will get you about
$440 for the gold
$290 for the silverSo if you get on gold at the right time, you're laughing. If you get on at the wrong time you'll cry. It is in the interests of those that have got on gold to try and increase the demand for gold, to make out like it is a safe bet in uncertain times. This will probably work, people will buy into it regardless of the soundness of the reasoning, the price of Gold will go through the roof, and then the smart investors that people were relying on will sell off before advising everybody else that the time for selling gold is here (thus using that same influence to reduce confidence in gold and drop its price...the canny investors might even get another go on the wheel.That's not to suggest, "don't buy": just to give thought to the issue first. I'm not a personal finance wizard, but I might think bonds are a good place to look right now. If there is one thing that is in demand it is corporate loans - the big guys want to loan some money from somewhere and they don't trust each other to pay them back. So yeah, maybe there are some good bond investments: They won't make you a millionaire, but I'd imagine that unless things go
very wrong they'll make your money grow.In summary: Precious metals aren't a surefire path to weathering a bad economy. There are many investment options in the world, and gold is but one of them. Consider them all, I found this site illuminating.Edited by Modulous, : No reason given.

I think you and I have grotesquely different concepts of 'quite stable'.I understand the advantages of a gold standard, but you do realize the disadvantages, yes? The paper is not meant to represent gold. If it does, what does the gold represent? I thought it represented a payment for goods/services? Are you suggesting that the amount of goods and services produced in the world per year is limited by the 2,500 tons of gold that can be mined? Edited by Modulous, : No reason given.

Without the Federal Reserve, there would be many many problems. Bank runs would happen more often as people panicked and withdrew all of their money at once. One way to achieve this is to have 'Elastic currency'

quote:

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Currency that can, by the actions of the central monetary authority, expand or contract in amount warranted by economic conditions.

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Not quite. There were two different schools of thought: some wanted the flexibility and greatness of the market to oversee money rather than have the government do it...others wanted the government to get involved for accountability and to keep the interest of the people involved. In the end the Federal Reserve is placed into private hands as a not for profit organisation, with heavy government regulation (unless of course, somebody becomes a massive deregulator which gives more and more power to these financial institutions). I assume you are a big fan of government regulation in this case.For example, if a bank starts loaning out a lot of money that cannot be paid back...the Federal Reserve is obligated to step in. With deregulation it becomes less likely they can/will. As those loans fail to be paid, the economy goes sour.The Federal Reserve is considered 'Independent within the Government'. Whether or not that is a good model is open for debate: we have the Bank of England which performs the same function but is owned by the state. I would have thought someone such as yourself, would prefer it be private rather than the socialist system we have here.

Are you suggesting that America prospered as a result of economic panics (such as the one in 1837) rather than despite them? And yet they didn't keep economic conditions relatively stable, as history shows. (The Long Depression and The Great Depression versus the Gilded Age and the Roaring 20s) I thought you hated socialism? Besides, when we put these things into the hands of politicians then the tendency is for their personal political interests to dictate their actions rather than the betterment of the people. This argument was had in the early 20th century, and it was decided to make it Quasi-governmental and demi-private. If the US kept it simple, it wouldn't be a the financial powerhouse it is. If we keep the economy simple, the US would be broke and unable to spend anything right now. Who manages it, and how, and why, and the rules in place are going to be necessarily complex.I'm not saying the system you guys have is the best, but it's hardly what you are trying to portray it as. If we want to stop the rich, private folk from making a lot of money from the system at the expense of everyone else then the thing to do is to regulate things via the government.

This statement is devoid of facts. Since I assume that you have checked the statement's veracity you can clear it up a little.How many members of Congress were absent?
How many voted yea or nea?
If all of those that voted against, would it have failed to pass?
What does rammed through mean? Are you suggesting that there was little or no chance to debate the Aldich-Vreeland Bill, or the Glass-Owen Bill? That doesn't sound right at all. Wasn't there an income tax during the Civil War? Wasn't there income tax during the 1890s? I'm assuming 'bankers' means the Fed: we had bankers long before any 'income tax' as we know it today and we had taxes long before we had bankers. Are you suggesting that the only usage for income tax when it was introduced again in 1913 was to pay interest? The Fed has to create money, inflation is essential to the economy. The government needs to loan its money from somewhere and someone will have pay interest on any of those loans as long as inflation exists. If you think your government is borrowing too much, perhaps you should direct your ire at the administrations that have borrowed the money, not the institutions that they loaned it from? Then the American taxpayers should stop borrowing so much money from the Federal Reserve bank via their representatives, right?

If the money doesn't exist in the system, increasing the amount of it doesn't do anything other than devalue all the currency. Congress, even if it had the power, would not do this to sort out the issue. The Federal Bank doesn't have the power to create wealth, just decide how much money there is in the system and ensure that there is enough currency to cover it.Any bank can give a loan though, and that is what the government needs when it hasn't got any money after it has spent it all. It could loan it from a private bank, who will do so with interest, it could issue bonds - which it will have to pay out on as well, or it can loan money from a centralised not for profit bank.Why must the bank charge interest? Because it cannot create wealth, and in the future, when the government tries to balance its books, the value of the dollar will be different (and this is a good thing). If the government borrows $500billion today, it cannot balance the books by assuming that in ten years the $500billion they have paid back actually covers it.If the government don't balance their books, then they just created money out of thin air, and thus that will devalue the dollar. It is simple. You cannot create wealth with a printing press or entry into a database. If you need to borrow money, you need to pay it back. Since the money that you borrowed could have been put to work (invested), by not having it for that period the institution that lends it to you will be out of pocket if you just pay the amount back so you need to also pay it back with interest.If you create a system in which there is no interest on loans, and the loaner does not end up impoverished as a result...and the wealth has to come from somewhere - everybody who has the appropriate currency will suffer as it suddenly becomes worth much less. A working Capitalist system also inflates the dollar - and this is a good thing. The Fed is charged with trying to make sure there is enough currency available to cover this inflation. It is up to the government to decide how much money they need to borrow. If they borrow too much, then the whole economy can suffer. Yes, the government is meant to appoint regulatory bodies and oversight committees - and how they go about doing this is answerable to the people. They've sucked at doing it recently. Will you be making the party answer for it? Inflation would have to be strictly watched to make sure it only rose in accordance with the acquisition of gold. If the people create too much wealth, and the government doesn't have the funds to cover it - then there'll be trouble. I'm sure the people will understand caps on profits to make sure the economy doesn't grow faster than the government's ability to represent it using shiny metals.

That 6% is a dividend paid on non-tradeable stocks, isn't it? Basically each bank gives up some money to be put towards Federal Reserves. Since they won't be earning any interest on this money while it is held in reserve by the Fed, they are given a dividend of 6% per year based on the amount of money they have put in the reserve.A private bank should be able to make more than 6% a year for its money, so this dividend is practically a loss for the member banks.