Monday, 19 May 2008

Inflation

My reply to James, since he does not allow comments on his blog:

Is the Government lying about inflation ?

No.

It is true that some things have gone up more that 2%, which is the Bank of Canada's target rate. Orange juice is one. I used to buy cans of frozen OJ on sale for a buck. Now I have to steal it from my neighbour. However, other things are cheaper. You can buy a brand new car for $10,000 now. When was the last time you could do that? Electronics always go down in price. Milk never changes much. Frozen dinners, meat, etc.. none of it is changing much.

Inflation is not 12%.
Something that cost $100 in 1964 would cost $690.80 this year, a whopping 590.80 % increase in just 44 years !
That may be, but that's only 4.6% inflation, and that period includes the mid 70's when Trudeau had to implement wage controls to try to rein it in, and interest rates sky rocketed.
I don't care what anyone says, I am keeping a majority of my savings in silver and gold. Over time, they have held their value.
If you take one thing away from this post, let it be this: DO NOT PUT YOUR MONEY IN GOLD AND SILVER! Especially not now! Seriously, you would have to be the Evel Knievel of investors to sink your money in something with a chart like this:

Sure, if you bought gold in 2000 and sold now, you would make out like a bandit. But if you bought gold in 1980 and sold 20 years later you would have lost half your money in nomimal terms, meaning that you would have lost more when taking into account inflation. (A lot more if inflation was 12%).

Sure, take a few thousand bucks and play the market, or shift 10% of your money into bullion if you sniff a recession around the corner, but fer gawd's sake, don't risk what you can't afford to lose.
When inflation happens, it only benefits large companies. Because prices always go up before wages.
Inflation does not benefit (most) companies because it causes interest rates to rise which makes the cost of borrowing more expensive, and all large companies borrow money. Lots of it.

Do prices always go up before wages? It's a chicken and egg thing, but sometimes wages go up more than inflation. Just ask the nurses about that.

6 comments:

pissinginthetent.com said...

We can agree to disagree....I did say I was keeping my SAVINGS in Gold and Silver , not my investments. Gold and Silver is a currency , not an investment. Gold and Silver are a hedge .

As for inflation , sure some things are cheaper.....but you don't buy a car everyday.....you buy fuel and bread everyday. Most people buy a car once every 4-6 years. People have less money because the staples of life are rising in price much faster than 2% per year.

I just got back from a visit with my life Insurance rep ( who was again trying to hock his mutual funds to me ) and we had a great talk about this....we can agree to disagree. Time will tell who is right. Meanwhile Peanut , go over to Gatewest on Corydon and buy a couple silver maple leafs every week, just in case.

cherenkov said...

I actually have a little bit of silver. Like, one or two ounces. My savings, however, are in a high-interest account where they'll keep growing in value after the economy rebounds and the price of silver plummets back to it's normal level. Gold and silver are rainy day investments. They only go up when people worry about the economy and the value of the dollar. But, as you say, we'll see how it goes. If the price of gas keeps rising that will definitely have a ripple effect and put pressure on inflation.

pissinginthetent.com said...

Your High Interest savings account.....earns about what 2-4% per year ? Inflation wipes that out, and then of course you are taxed on the income. You might even be losing money.

pissinginthetent.com said...

Today's free press :

"The main culprits for last month's higher inflation rate were a 16.8 per cent rise between April of last year and April of this year in the cost of gasoline, along with a 13.9 per cent increase in the cost of cablevision and satellite television services and a 10.1 per cent spike in the cost of bakery products."

cherenkov said...

My high interest savings account probably nets me about 1.5-2% after inflation. Not a great return, but that's not the point of putting my money there. I have mutual funds, etc. for most of my wealth (if you can call what I have wealth).

I'm not denying that some things have gone up substantially. Just saying that not everything has, and that you can trust the BoC's inflation rate #s. ... and that silver/gold is a risky place to put your money.

Anonymous said...

Gold and Silver has been a safer place than the stock market over the last 70 years.

 
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