How Are Heroin And Inflation Alike?

Inflation is a serious problem that everyone accepts to a point. Accepted or not, it is a serious problem. In small prolonged doses we seem to get along. But should we?

Ernest Hemingway

Hemingway was not an economist but he did seem to understand how the world works. Not to mention being more than a little cynical.

“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”

There is currently no shortage of opportunists. Perhaps we should pay more attention to that.

Another view.

Using inflation as a tool is much like the problem that comes from using heroin. In the beginning a little will provide a large perceived benefit. Over time though, the margin between what amount will give you the good feeling and the amount that will kill you becomes very small. It is only a question of time until someone addicted to either will make a mistake.

The American CPI numbers are readily available back to the beginning of 1913. What  dollar bought in 1913 can be had today for $27.95. We could argue that our standard of living is much higher, that wages are much higher, and that government programs are very costly, but that doesn’t really address the issue.

The inflation question

Who got the benefit of it? Seriously, who got the other $26.95?

People who owned cash or dollar denominated investments did not. People who borrowed a lot of money and survived probably got some. It would depend on what they bought with it and how they reacted to the volatility in the interim.

People who owned precious metals. Gold was $20 in 1913 and $1,800 now. Ninety times is better than 28 times so there’s that.

Stock market. From 1926 to now the S&P 500 total return index is up.  It was created in 1926. It’s up 14,000 times. Also good. Once again it would take a truckload of Xanax to deal with the quite violent variations in the century that followed.

None of these tells us who won or why.

I’d like to tell you but I don’t know either. I have only thought about it as a general question for an hour or so. My first instinct is no one wins. It is about relative losses.

I think it is safe to assume the government wins more than the people and the more risk averse the people are, the more they lose. Few 85-year-old grandmothers are buying tech stocks.

What is happening now?

Do millennials own a portfolio of diversified stocks, sound bonds, and some cash for opportunities? They do not. They own crypto currencies, RobinHood Markets, and stocks they buy after tips on Reddit. Will they be right? Come back in 20 years and we’ll know. Maybe three years.

We old guys are either ignoring it all, or are totally confused. Ignoring feels better, but confusion might lead to a solution.

It’s time to think about it. Start with how you might benefit from inflation. If you can’t see a way you could live with it, try to decide who or what is causing it. Maybe you could do something about that.

Aa Warren Buffett suggests, “When you find yourself in a hole, stop digging.” It’s time to be hyper-realistic. Pay more attention to objective facts than to talking heads. It’s time to play some defence.

The bit to take away

It is unlikely that inflation will work to your advantage. Look for alternatives.


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I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email to don@moneyfyi.com

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