Economists talk of inflation and deflation. Both are bad and good, depending on who you are. And when there is too much of one or the other, the ones to blame are usually the ones who benefit most. There is of course a third, more flexible group of scammers and swindlers, which causes neither but postures itself to make financial gain from anything that moves.
It’s clear that banks and governments benefit most from inflation. Banks do so by diluting the wealth of the masses and making themselves an essential partner in pretty much every aspect of life through their power to issue new money through fractional reserve banking. Governments benefit through bracket-creep. Taxes rise with inflation disproportionately and governments can appear generous to their constituents by lowering taxes (adjusting them back to original values in real terms) and raising wages (again, adjusting to original values). In both cases, the average individual who busies himself in productive work does not benefit. Nothing deep about that.
In deflation, which has occurred for only brief periods in history, the beneficiary is he who owns no shares or financial instruments but has cash and income. He can pay off his debts (if any), invest in tangible things and support himself more effectively than before.
But with banks and governments set to lose out in a sustained deflationary period, it is no surprise that we have incredibly big “stimulus packages” being thrown around at this time. We are set for an inflationary spiral. With the losses already experienced by soon-to-be retirees in their superannuation savings, we are about to witness their total financial destruction through the devaluation of the money they have left. They are going to be desperately poor.
How to plan for this event? I don’t know exactly, but some how I don’t think buying gold is quite the right option. As much as it gleams and shines and as much as “big money” is rumoured to be purchasing it, I think that for the average punter this is not a way out. It is no sure-fire way forward. It may be a life-saver, however, so a modest amount of gold ownership might be wise if one has money to spare.
The best thing to do now is the same as has always been the case. Get out of debt, spend money only where necessary and work hard. Nothing deep there either. As always, real value rests in the things that are important in life and not what talking heads in fancy suits claim is important.