SG wants to know how to prepare for the rising price of stuff. Let me answer this question on two levels. First, we'll talk theory. Then, we'll get practical. If you need some background, here are a series of links to previous posts (in logical order) that can help get you up to speed:
Inflation and Federal Reserve Notes
Fort Knox Gold and Federal Reserve Notes
The Federal Government and Inflation
Why the Federal Government Sponsors Inflation
The Price of the Basics is Rising Dramatically
Let me issue a word of caution. I am not giving you "investment advice" in these three posts. Do not construe what I say as an appeal for you to take similar action. I am simply letting you look over my shoulder to examine how I have answered SG's question to my own satisfaction. If you do something similar, do it because you are personally convinced by your own research that it is the right thing to do.
Okay, let's talk theory. It may take you a little time to wrap your mind around this statement, but here goes: A loaf of bread is worth a loaf of bread. (Wow - deep!) What we call "rising prices" are not the product of things becoming more expensive. "Rising prices" are a commentary on the diminishing value of a currency. When the price of gas doubles, it is not because the "expensive gas" is twice as good as the "old gas." Rather, the dollars used to purchase gas have become worth half of their former selves.
What we call "inflation" is simply another word for "devaluation." Discipline yourself to replace phrases like "the rate of inflation" with "the rate of devaluation" and it can help you see what is moving and what is not. Seated in a passenger car on a fast moving train, everything close to you seems stationary. Look through the window and everything else seems to be in motion. But from behind the wheel of a car stopped at the railroad crossing, the train is a blur of motion, while all else is stationary. The word, "inflation," describes how things appear from within a fast moving train of currency devaluation. But all the stuff in the world isn't going anywhere. Step off the train and you see that the only thing in motion is the value of the currency.
This makes answering SG's question quite simple. In a world of steady "inflation:" Hold as little currency as possible (it is going down in value) and convert as much as possible into stuff that holds its value. By the way, don't miss that last phrase, "that holds its value." Not all stuff is created equal. Trading dollars for apples might seem a good idea when the fruit is fresh, but if you are using those apples as a store of value, it's a rotten plan.
Even among assets that hold their value, not all stuff is created equal. Diamonds and gold come to mind. They are both considered a store of value, but the value of a diamond is largely determined by the expert opinion of a gemologist. Diamonds (and other valuables like real estate and works of art) are not considered "fungible" because two apparently equivalent items can have dramatic differences in value, based upon the evaluation of an expert.
If you are looking for something as a "store of value" that can be easily used to purchase goods and services, both gold and silver have filled this role for thousands of years. In Genesis 13:2, we are told that Abraham was "very rich in livestock, in silver and in gold." Here is the first biblical reference to the monetary use of gold and silver, circa. 2,000 BC.I don't know much about livestock, but Abraham's other stores of value seem, to me, to be right on the money. I think gold and silver should figure into a strategy to cope with "the rising price of stuff." (Translation: "the diminishing value of our currency.") As a result, I have taken a percentage of savings / retirement money and converted it into silver and gold. How? In what form? Check out the next two posts.
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