When you have a fiat currency, sooner or later you get deficit spending. And that means that inflation is guaranteed, and it will devour the purchasing power of every dollar you own, writes The Daily Reckoning. The S&P 500 went from 108 in the late 1960s to 107 in the early 1980s, for a small 1% loss. That is bad enough, to not earn any money over more than a decade, but if you look at the same slice of time in the inflation-adjusted data, investors actually lost nearly two-thirds of their purchasing power over this same period!
You got killed by inflation!
So no matter what the clueless touts on TV say, neither stocks, nor bonds, nor houses will preserve your purchasing power over the long term nowadays. When you have a fiat currency, sooner or later you get deficit spending, and that means that inflation is guaranteed, and it will devour the purchasing power of every dollar you own.
But is there EVER a time when stocks preserved their purchasing power? Adam Hamilton, of the Zeal Intelligence Newsletter says, "Over the past half century from the absolute best-case moments in time to buy and sell for the long term, fully 7/8th of the gains investors could have reaped are illusory. These are wiped out by rising inflation decreasing purchasing power."
In case you, like me, missed the significance of that, they summed up by reiterating, "Thus inflation wiped out half of the best possible annual gains in the last half century or nearly 7/8th of the final compounded return."
Simone Meier of Bloomberg said in July 2005, "Money supply growth in the dozen countries sharing the euro unexpectedly gained at the fastest pace since October 2003." An increase in the money supply always precedes the resultant and unstoppable increase in prices.
So how much is the money supply expanding? Ms. Meier writes, "M3, the ECB's measure of money supply, accelerated to a 7.9 percent increase from a year earlier." Well, that is true, and as bad as that is, what is NOT mentioned is that the narrowest measure of money supply (cash and equivalents), according to the Economist magazine, is increasing at 10.5% in the Euro area!
So what does all of this expansion of money and credit mean, as far as inflation is concerned?
If there is one thing that I want you to remember, it is that there is no acceptable level of price inflation above zero. Zero is the upper bound on acceptable inflation. And if you think otherwise, like the horrid Ben Bernanke and a lot of other morons who ought to have their faces slapped, then show me one other time in all of history when a "little" inflation was a good thing.
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 Some discussion on inflation-protected funds is in these prior articles:
- Treasury inflation protected securities funds (TIP, WIA, WIW)
- More on TIPs closed-end funds (mentions IMF, TIP)