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Dr. Paul Price
Dr. Paul Price
Articles  | Author's Website |

Let's Be Frank; 'Not Investing' Is an Unacceptable Risk

In a Zero Interest Rate Policy (ZIRP) world, the riskiest long-term choice is holding cash

May 31, 2016

Inflation, like high blood pressure, is a silent killer. Hypertension can steal your health while creeping inflation will just as surely rob you of your wealth. Both effects occur over long periods, going unnoticed most of the time.

I saw the photo below of Nathan’s Famous on Coney Island, New York, dated circa 1930. Crowds were queued up for the 5-cent hot dogs, burgers and roast beef sandwiches. Soft drinks were a nickel as well. Bottled beer set you back a dime.

Just for kicks I googled Nathan’s current menu prices. Yikes! Frankfurters and cheeseburgers are now $3.99.

Keeping up with those 86 years of price increases required a 5.22% after-tax average annual return. Try getting that on a money market account, bank CD or even from 30-year treasury bonds these days.

If you are thinking hot dogs are an outlier, think again. Here are some other reminders of what things used to cost. Do your own math on what tickets for the hottest rock bands would cost today. I doubt you’ll even be able to park or get to the stadium for four bucks.

Were you in the market for a house back in 1950? You only needed $11,000 back then to live the American Dream, along with 55% of the population. The inflated costs of home ownership have kept most Millennials from getting in on the ground floor. Instead many are sleeping in their parents’ basements.

Will Janet Yellen and the Federal Reserve Bank protect us from the ravages of inflation? Isn’t part of their famous Dual Mandate maintaining price stability?

It sure is. How has our Fed done in ensuring “stable prices” since taking over the country’s financial affairs in 1913? Their own numbers indicated an almost 96% loss of consumer purchasing power from the start of 1913 through January of this year.

As buying power has been eroding, median incomes have barely budged. Since 1973, middle quintile earners have seen only 8% cumulative wage increases. That’s down from, still meager, 16% gains even at the height of the technology/Internet boom.

Saving cash for a down payment has been counterproductive since 1973 as home prices escalated faster than interest on risk-free savings accumulated.

When you take all this into consideration, the disenchantment of the masses with politicians of both parties becomes quite understandable.

You and I are powerless to stop our leaders from destroying the value of fiat-based money. All you can hope for is to protect your life savings in the best ways available. The biggest risk comes from holding anything that can’t be marked up as the dollar, yen, euro and pound are marked down.

The ongoing and accelarating "war on cash," accompanied with negative interest rates in much of the world, are both designed to steal the most money from the most people with the least chance of evasion.

Bank bail-ins, designed to turn unsuspecting depositors in failed banks into just more "unsecured creditors," have already occurred in Iceland, Cyprus and Greece. More of the same is on the way around the world.

Stop worrying about fluctuations in equity prices. Focus on the very real and more problematic risks of much higher inflation Venezuela’s is now headed for 700% and confiscation of wealth.

Stocks, precious metals and real estate are likely to fare better over the long term than traditional safe havens like cash, bonds or CDs.

Disclosure: Heavy in stocks; I own no bonds or CDs.

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About the author:

Dr. Paul Price


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Rating: 5.0/5 (2 votes)



Wanna Kamdason
Wanna Kamdason - 2 years ago    Report SPAM

I loved your hypertension/inflation metaphor.

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