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Inflation and the Value of Gold Explained

from our sponsor, Gold Money...

As the story goes, someone asked an economist how his wife was doing, and the economist answered "compared to what?"

Joking aside, this is one of the most important questions one can ask when dealing with many economic problems.

In recent times, with gold reaching all-time highs, we have seen people question the valuation of assets in dollars. Basically, the yardstick used to measure your assets — your house, car, or stock portfolio — is a steadily shrinking one. This makes you wonder whether your savings are really growing in value. In other words, if the value of your savings has doubled, but the price of milk and everything else has roughly doubled, you are not getting ahead. If anything, you will likely have to pay taxes on your supposed "gain," which is no gain at all.

macro_gold_gearsThe way the dollar yardstick is being shrunk is by increasing the stock of money, which means that there are more dollars in circulation. Governments do this.

Why would governments want to decrease the value of our money? Well, there are many reasons why this is very advantageous to our masters. 

First, creating more dollars is an easy way to pay for government expenditures. If the government wants to pay for wars, bailouts, or their own cushy salaries and perks, they can print the money instead of taking it away from us by force through taxation.

Second, we all know that scarce, desirable goods are more expensive than abundant ones. On the other hand, some goods are so abundant that they are free in spite of their desirability, such as the air we breathe. So by increasing the number of dollars — by inflating the stock of money — the state reduces its exchange value. This is very bad if you are saving money, but it's great for governments because they are usually big debtors.

Unfortunately for us, this process of devaluation can be done until money is completely worthless. It happens easier than you might think, and not only to banana republics but also to mighty countries.  Contininue Reading on Gold Money, our sponsor

Related: Why Invest in Gold or Silver

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