The Subtle But Powerful Danger of Inflation

We haven’t heard its name bandied about much in recent years, but that doesn’t mean it isn’t still a major threat: inflation. As John Maynard Keynes once wrote:

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens… Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

The irony is that Keynes abandoned his sound economic thought to develop a theory of economic quackery that now pervades the modern world. But that quote remains perhaps one of the best things he ever wrote, and remains perfectly valid today.

Even those of who are aware of inflation and its dangers and who can diagnose its occurrence aren’t able to completely mitigate its effects, precisely because it acts so subtly. Because small rises in prices can take years to compound, 2% here or 4% there, coming in fits and starts, inflation’s effects aren’t always readily apparent until one day at the grocery store we wonder why ground beef is twice as expensive as it used to be.

For those who are younger and making their way through the workplace, getting promoted and receiving raises, inflation may not be that big of a concern, which is why so many people don’t pay attention to inflation. If you keep getting raises and promotions, you may find your salary easily outpacing the inflation rate. Consequently, rising inflation gets ignored by a great many people.

But once you’re nearing the end of your career and thinking about retirement, you may realize that your dollars don’t go as far as they once did. Especially if you’re going to be living on a fixed income, inflation is the elephant in the room that could erode the power of your savings and diminish your quality of life in retirement. Because of that, many people may believe that they are at the mercy of inflation and that they can’t do anything about it, but that’s not the case.

With the right investments, anyone can protect themselves against inflation. And of course gold plays a strong role in that protection. Gold has been trusted by people for centuries as a hedge against inflation, as it holds its value even when governments inflate their currency into oblivion. In fact, since the year 2000 gold has even proven a better investment than stocks, growing at nearly double the rate of the Dow Jones.

As long as the Federal Reserve System engages in its loose monetary policies, inflation will be a fact of life for consumers and investors. But by investing in gold they can mitigate some of its worst effects and ensure a comfortable standard of living in retirement.

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