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What is Your Position on Inflation?

If you read Monday’s post about the movie, In Time, you know that it is a futuristic thriller about time as the ultimate currency.  I won’t recap the post from two days ago, but instead want to highlight one of the scenes from the movie.  After Will and Sylvia had escaped the wealthy time zone and were running from place to place in the ghetto of Dayton, Will becomes discouraged.  They had been robbing banks and handing out the time (money) to the poor.  Will of course realizes that ultimately their efforts are futile.  He tells Sylvia that the rich would simply raise the prices of everything and the cost of living would increase.  I immediately thought to myself, “BINGO, dude!”  That is inflation!  Which brings me to today’s question and discussion–

What is Your Position on Inflation?

Now I am not talking about a political or philosophical stance on inflation.  I am talking about how you will be able to respond to an increase in the cost of living.  Are you in a hopeless position like the residents of the ghetto?  Or are you in a position to raise the cost of living of another person and profit from inflation?  Or are you somewhere in between?  And perhaps most importantly, which direction are you going?

Darwinian Capitalism

It doesn’t matter what social or economic model you most favor.  The reality is that there have been and will always be different social and class structures regardless.  Look at Libya, the former Soviet Union, the Roman Empire, Japan, the United States.  It doesn’t matter.  There will always be owners and renters, borrowers and lenders.

Even if you took all of the world’s wealth and split it up precisely evenly among all the world’s 7 billion inhabitants, by the next morning, there would be differences again.  Some might want to spend some of their money to get a particular food that they like.  Others might want to move closer to the mountains or the beach and be willing to pay extra to live there.  Others might be a buyer or seller of the second oldest profession and so services would have been exchanged for money.  The bottom line is that human nature will always be about fulfilling desires and trading money or time or possessions to get that done.

Back to the Question at Hand

When the price of gasoline increases from $3.05 to $3.35 in an afternoon, do you cringe?  Or do you own Exxon Mobil stock so as an owner you know that you benefit from higher prices?  When I first saw that yesterday, my initial gut reaction was to cringe since I was so hoping that I would see gas below $3 per gallon this winter.  But once I thought about it, I realized that this might in fact be neutralized by some of the investments in my retirement portfolio.

Do you own the shelter over your head?  Or are you worried that your rent will go up forcing you to move?  Do you own farmland or grow a garden?  Or do food prices dictate what you eat?  Can you change your own oil or fix your own sink?  Or do you have to wonder how it is that a plumber can charge so much?

So think about it!  What is your position on inflation?  Does the cost of living have you by the throat, or can you get the upper hand?  Are you stuck in Dayton or moving toward New Greenwich?  Feel free to share below.

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29 comments - What do you think?  Posted by Cash Flow Mantra - November 30, 2011 at 5:00 am

Categories: Spending, Investing   Tags: , , , , ,

Sound Money and Cheap Gas

I read an interesting post two weeks ago that discussed buying gasoline for 25 cents per gallon.  Just reading the title made me think it was an article about getting gas in one of the OPEC nations where gas is provided at a subsidized price to citizens.  But it turns out the post was talking about getting gasoline for a quarter per gallon here in the United States.  I am not including a link since it was a thinly guised ad but the basic concept behind the ad was thought provoking to say the least.

The premise was that, in 1964, quarters (as well as other coins) contained silver.  According to coincalculator.com, a 1964 Washington quarter contains 0.18 troy ounces of silver.  Valued according to the silver content at $35.54 per ounce, a quarter would have a melt value of $6.43!  This is a lot more than the $3.45 per gallon of gas that I paid yesterday.  In fact, I could get almost 2 gallons of gasoline with that one 1964 quarter.  When I do a search for gas prices in 1964, I find that the cost of a gallon of gas was 30 cents so I probably could get a full 2 gallons for the equivalent of 30 cents.

Another interesting comparison is the cost of a new house compared to the price of spot silver.  Again if you can believe what you find on the internet, the price of a new house was $20,500, and the price of spot silver was $1.29 per ounce.  These numbers make sense to me knowing that my parents paid $30,000 for their house in 1973.  These prices mean that it would have taken 15,891 ounces of silver to buy a new house.  Today, the median house is priced about $157,000 and silver at $35.  Do the math and you find that it takes about 4,485 ounces of silver to buy a house today.

Now, you can argue all you want whether or not silver is a good investment or whether silver should be considered money.  But that is not the point of this post.  The point is that this information should really get one to thinking about the impact that inflation and money supply has on what we all pay for basic necessities of life.

What impact will this have on your retirement savings?  You may argue that stocks beat inflation so there is no worry.  Will you be 100% in stocks during retirement?  Well, the S&P 500 closed 1964 at $84.75 according to this site.  At $1.29 per ounce of silver, that is a stock market to silver ratio of 65.7.  The current stock market to silver ratio is about 35.8 meaning that it takes less silver to buy the S&P 500.  Interestingly, the difference is about 45%, and I have read that about 44% of the S&P 500 returns can be provided by dividends.  Since the index numbers are without re-invested dividends, it seems that stocks have simply kept pace with the price of silver but offered no better returns on capital gains.  Maybe the only reason stocks can outperform inflation is because of the dividends?  Just another fact to ponder.

So, does this information mean anything to you?  Were you a little surprised that a gallon of gas today would cost less than a quarter if that quarter were from 1964?  Do you even consider silver a viable investment?  I would love to hear your thoughts.

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12 comments - What do you think?  Posted by Cash Flow Mantra - June 20, 2011 at 6:05 am

Categories: Saving, Investing   Tags: , , , ,

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