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One of the most dangerous lies in all of finance and economics is the implied myth that inflation somehow “destroys” wealth. It doesn’t. Inflation doesn’t hurt everyone equally — inflation helps some and hurts others.

Inflation is actually one of the biggest reasons large corporations are so powerful in society. The government and big banks use inflation to force people to spend their money and go into as much debt as they can afford.

But how does it all work? Before we answer that, let’s first look at a parable. Some things are best learned in a story format, and inflation is one of those.

The Saver and the Slave: An Inflation Story

There were once two men who were neighbors. Their names were “Jack” and “John”.

Jack was a saver. He spent his entire life saving every penny he could get his hands on. He saved money with coupons, saved money by buying stuff only in off-seasons, saved money by spending as little as he could, etc. He was a saver. By the time he was 45, he had saved exactly $100,000.

John was a spender. He spent every dime he ever earned. Back in his 20s, he even took out a $100,000 loan, and bought two houses with it. He never used coupons, never looked at prices before buying anything, and wore nicer clothes.

During this time, inflation started to hit in. Inflation was fairly high. By the time Jack and John were 45, inflation destroyed 90% of the value of the US dollar.

For Jack, this was disastrous. He spent his whole life saving $100,000, and suddenly it was worth only 10% of what it should have been worth. This means that rather than having 100k it was as though he only had 10k. Not enough to even buy a house.

For John, this was perfect. He spent his whole life spending his money, so he didn’t see his money lose value. He took out a 100k loan, but his loan was only like he had a 10k loan now — and he still has two houses. John ended up selling one house, paying off the loan, and walking away with a free house, and 90k.

Inflation Destroys Debt and Dollars

Inflation doesn’t destroy wealth — inflation destroys dollars. This means if you’re in debt, inflation makes your debt less and less. If inflation is 10%, it’s like your debt is getting 10% smaller every year. If you’re a saver, inflation makes your savings 10% smaller every year.

Every year people in debt see their net worth increase because of inflation.

Every year people who are savers see their net worth decrease because of inflation.

Inflation doesn’t hurt everyone equally — it just hurts people with cash, and forces them to spend their money and get into debt. Inflation essentially forces people to become slaves to banks and to not have money.

In an inflationary society, people who are willing to go into debt to buy houses, businesses and such are at a huge, huge advantage over people who just save their money. Savers are penalized. Spenders are rewarded.

What This Really Means

Because inflation makes debt more attractive, an economy with inflation will see a much higher level of debt than societies with less inflation. This leads to the economy becoming much less secure, and sets us up for financial catastrophe.

Inflation is one of the reasons so many people purchase houses and property even before they have the money — inflation makes cash less profitable or secure.

There’s a reason the government and large banks support creating inflation. It pushes individuals into debt. It makes consumers slaves to creditors. It transfers wealth from savers to people in debt. It stops frugal people from being able to make ends meet unless they have large incomes.

This all means several things:

a) Investing makes more sense. Savings accounts don’t pay interest that’s higher than inflation. This means that most people will use the stock market to build up wealth over time — they have to take part in the financial system. Plenty will get fleeced in the system. Big financial institutions make more money this way.

b) Debt makes more sense. This should be obvious. You’re using inflation to essentially get free money. Most debt comes from banks, meaning you’ll be a voluntary debt slave to a bank because it’s profitable to become one. You’re shackled to the system.

c) An independent retirement is difficult. Being able to save your own money for retirement is much, much more difficult with inflation. If it wasn’t for inflation, social security would be much less likely to exist. This means inflation makes the people more dependent on the government. The establishment loves this.

If you save $1,000,000 for retirement over the course of 50 years, and inflation is 4.07%… you actually only save $136,000 in today’s money, which probably won’t be enough to own a nice house.

Does this mean you shouldn’t save? Does this mean you should go into debt? Not quite. I’ll be writing what you should do in the future… hint: gold is a great inflation hedge.

Right now, inflation is skyrocketing. Gold is exploding. Silver is exploding. The dollar is dying. This is all happening in a way that is destroying savers, rewarding debt, and creating an economy that is based on debt and insecurity.

Shaun Connell is the the founder and editor of Stand Strong Research. He’s an entrepreneur and investor living in rural America. He’s also a firm believer in income investing, inflation hedging, and debt-free living.

Related articles

• Millions of savers have no choice but to lose money (independent.co.uk)
• Through the Looking Glass economics (theglobeandmail.com)
• Why bother saving? (telegraph.co.uk)
• QE2 and Its Effects (economicnoise.com)

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Buy or Sell Gold?

The latest Wall Street Journal is filled with stories about financial planners advising clients to either sell their gold or not buy anymore.

Naturally, you’re probably asking, “Should I buy or sell gold?”

My answer is that it depends.

My gold buying career began in 1972 while I was a pilot in Vietnam, when gold was about $85 an ounce. When it passed $750 an ounce from 1979 to 1980, I was forced to sell, not because I wanted to, but because I needed to pay off some bills.

In the 1980’s, when Kim and I were flat broke, we bought a little gold and a little silver on a regular basis. When gold dropped below $400 on its way down from $850, I bought gold at $400, thinking it was a good price. Then it dropped to $375. I felt stupid, saying to myself, “I should have waited.” So, I bought at $375 and it dropped again. Still feeling stupid, I bought more gold. When gold went below $300 around the year 2000, I bought as much as I could afford.

In 1996, with gold and silver so low in price, a group of investors and me purchased a silver mine in South America and a gold mine in China. We nearly went broke bringing both mines to market in Canada. The silver mine was sold to another silver company and the Chinese gold mind went public through an IPO on the Canadian Exchange.

I regret selling that silver mine. I should’ve held on to it but the cash was tight and the offer too good to refuse.

In 2000, Rich Dad Poor Dad was still a self-published, obscure book. We had no income from the book or our games. Oprah hadn’t called yet to get me on her program. Our primary investments at the time were larger apartment houses and one commercial property. Cash was tight in 2000, but with gold and silver at such low prices, we cut corners on food and luxuries and bought as many gold and silver coins we could afford.

In 2001, after Rich Dad Poor Dad took off, Ron Insana interviewed me on the financial TV channel, CNBC. He asked me what I was investing in and I told him gold. He thought gold was a strange investment but listened to my arguments politely.

Generally, paper asset investors like Ron Insana, don’t invest in gold, silver, or real estate. If they do invest in hard assets, they invest via paper assets through gold mining shares, ETFs (Exchange Traded Funds), and REITs (Real Estate Investment Trusts).

Today, gold is on everyone’s mind. Many say gold is in a bubble. Some say it’s time to sell, not to buy. Personally, I’m not buying much more gold and silver because I have enough. But you might want to know why I’m not selling.

Why I’m not selling
The primary reason I’m not selling my gold and silver is that the US government is in big trouble and the problems are getting bigger, not better. In the October 25th edition of The Wall Street Journal, a number of articles validate my concerns.

One article points out that TIPS (Treasury Inflation Protection Securities), are gaining in popularity. This means investors are now betting on inflation. For a number of years, TIPS and traditional US Treasury Bonds were running at about the same price. Which gave no indication of inflation or deflation. Bonds are good investments during deflation. TIPS are good investments in inflation.

I knew such a neutral position between bonds and TIPS couldn’t last long. Today, TIPS are so hot that they’re selling for a negative yield. In other words, the fear of inflation is so high that TIPS investors will do anything to get their money into something that won’t lose value. TIPS investors are paying money in order to not loose as much money as they could otherwise, if that makes any sense.

Now, with TIPS becoming hot, it means bond market investors are betting on inflation, not deflation. This is good for gold and silver. Rather than invest in TIPS, I prefer gold and silver. Rather than trust my government, I trust gold and silver. And if traditional bonds became hot, it still wouldn’t change my preference for gold or silver.

The article on TIPS in The Wall Street Journal was only the tip of the iceberg. On the same page were articles with headlines such as:

So, from just one page of The Wall Street Journal, there are four articles indicating inflation, when the article on TIPS is included, and only one article about financial planners advising against gold.

I’m betting gold and not the advisors. What you do is up to you.

The primary reason I hold on to gold and silver is because the US has massive problems still ahead. We have a massive budget deficit, debt that won’t stop, and a dysfunctional political system. On top of that, there are approximately 75 million baby-boomers about to start collecting Social Security and Medicare. Medicare is slated to go broke in 2019, and to make matters worse, President Obama passed Obama care, adding to the costs. This is nuts.

I’m not blaming President Obama. He’s accurate when he says that he inherited the problem. For those of you who’ve read Conspiracy of the Rich: The 8 New Rules of Money, you know that today’s problems started a long time ago and have only grown worse.

I doubt the US can solve our financial problems. We’ll never be able to produce enough to pay our bills. Our budget problems are now too big. Since the US cannot produce more than we spend, the way the US will attempt to solve the government’s financial problems is by printing more money.

And as long as the US is going to print money, I’ll stick with gold and silver. If the government stops printing money, I may start selling.

But if the US stops printing money, you’ll definitely want to buy a gun and enough ammunition to last a while. It may take sometime for the rioting and looting to subside.

Rich Dad’s Advisors: Guide to Investing In Gold and Silver: Protect Your Financial Future

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