Debasement concerns?

[frayne]

Here’s how I look at it, my rule of thumb and it’s quite simple math: if inflation averages 4%, then using the Rule of 72, the value of your dollar is halved/debased every 18 years.

 

[Koolau]

Here’s how I look at it, my rule of thumb and it’s quite simple math: if inflation averages 4%, then using the Rule of 72, the value of your dollar is halved/debased every 18 years.

Heh, heh, the good news? I don't likely have 18 years (oh, and inflation is down below 4%). Yeah, I know, that was just an example.

 

[GrayHare]

As Yogi might say, "A million ain't worth a million anymore."

Debasement mostly affects cash, and cash stashes like a bank checking account that these days pays well less than inflation. There's also a lag as debasement occurs. For example, most salaries do not increase 1% per quarter to keep up. After a year elapses, the boss can sound generous offering a 4% increase.

The nastiest part is we pay taxes on the debasement. An asset might have doubled in price since we bought it, but after inflation. its purchasing power might be the same. Upon sale we have to pay tax on what is actually a fictional capital gain.

 

[Spock]

I really don't pay much attention to it. I had to look up the word. Devalued money seems, in its basic form, to affect only those who have stuffed their money under the mattress. Investing in gold, real estate, stocks other "things" are all ways to buffer against hording cash. Maybe I have it wrong. I am willing to learn.

I'd say debasement effects any investment with a negative rate of return after inflation... ex. bonds where the coupon is below the real inflation rate.

 

[Ballhawker]

The value of the dollar has actually been improving over the past few weeks so this recent parabolic run looks a lot more like FOMO than debasement to me.

 

[CalBird]

Upon sale we have to pay tax on what is actually a fictional capital gain

So debasement is the best friend of government, it will dilute the debt and increase revenue.

 

[copyright1997reloaded]

So debasement is the best friend of government, it will dilute the debt and increase revenue.

Yep.

Why do you think the what a dollar could buy in 1977 (when the federal reserve act was updated due to inflation issues to include the mandate to maintain "stable prices") costs $5.32 today?

 

[Koolau]

As Yogi might say, "A million ain't worth a million anymore."

Debasement mostly affects cash, and cash stashes like a bank checking account that these days pays well less than inflation. There's also a lag as debasement occurs. For example, most salaries do not increase 1% per quarter to keep up. After a year elapses, the boss can sound generous offering a 4% increase.

The nastiest part is we pay taxes on the debasement. An asset might have doubled in price since we bought it, but after inflation. its purchasing power might be the same. Upon sale we have to pay tax on what is actually a fictional capital gain.

Just ONE of the reasons that gummints actually like inflation (in appropriate doses).

 

[Spock]

Just ONE of the reasons that gummints actually like inflation (in appropriate doses).

appropriate doses == just below triggering crowds with torches and pitchforks.

 

[Koolau]

appropriate doses == just below triggering crowds with torches and pitchforks.

Heh, heh, you noticed.

 

[Hamlet]

I’ve started planning for the possibility that the United States has a catastrophic decline.

I’ve always been very US and dollar centric in my investing, but that is changing. I’m shifting to more international stocks and have even bought some international bonds.

 

[frank05]

It is when I see ATMs stocking 50 dollar bills instead of tens, then I will be concerned.

 

[frayne]

 

[Spock]

It is when I see ATMs stocking 50 dollar bills instead of tens, then I will be concerned.

GSIB bank has two ATMs in town (small town). One is stocked with 50's and the one at the only branch drive up is stocked with $100s.

 

[Spock]

I’ve started planning for the possibility that the United States has a catastrophic decline.

I’ve always been very US and dollar centric in my investing, but that is changing. I’m shifting to more international stocks and have even bought some international bonds.

check to see that those investments are not hedged to the USD. Otherwise you're not getting the currency diversification you think you are.

 

[Koolau]

I’ve started planning for the possibility that the United States has a catastrophic decline.

I’ve always been very US and dollar centric in my investing, but that is changing. I’m shifting to more international stocks and have even bought some international bonds.

I've always thought it like an insurance policy to diversify into some OUS index - but not too much. PMs are a possibility as well since PMs do not care what currency they are valued in. They are a universal play - but don't get carried away since they don't earn anything - only reflect current sentiment on currency values.

One of the advantages of being as old as I am is that any serious USA catastrophic decline is less and less likely to happen in my lifetime - but YMMV.

 

[copyright1997reloaded]

It is when I see ATMs stocking 50 dollar bills instead of tens, then I will be concerned.

They already do stock $50's (but still have $10's for the peons).

As they say, "the $100 is the new $20". We are almost there regarding ATM's. ATM's became widely used in the 1980's. According to my inflation calculator $100 in 1980 is worth $25.43 today, so a better expression is the $20 is the new $5.

 

[Ballhawker]

check to see that those investments are not hedged to the USD. Otherwise you're not getting the currency diversification you think you are.

I own VXUS. Do you know if this provides a hedge against the dollar? I thought it does but now I'm wondering if that's a good assumption.

 

[Koolau]

I own VXUS. Do you know if this provides a hedge against the dollar? I thought it does but now I'm wondering if that's a good assumption.

Keep in mind that most larger companies are already hedged or diversified globally. Don't have the numbers but even the S&P500 is "global" so you're already part way there with simple index investing in large company stock funds.

 

[Spock]

I own VXUS. Do you know if this provides a hedge against the dollar? I thought it does but now I'm wondering if that's a good assumption.

According to google VXUS is not hedged, which is what you want if the dollar drops relative to other currencies. (If the dollar rises, you want to be hedged against currency changes). But don't take my word for it... DYODD.

 

[Ballhawker]

According to google VXUS is not hedged, which is what you want if the dollar drops relative to other currencies. (If the dollar rises, you want to be hedged against currency changes). But don't take my word for it... DYODD.

Hmm ok thanks will do.

 

[Sunset]

Just ONE of the reasons that gummints actually like inflation (in appropriate doses).

And Mortgage holders, nothing like paying off a debt with decreasing value dollars.

Personally, I would like inflation to be zero. But even store owners don't want that, as then I could put off buying X for 3 years knowing it's going to be the same price. With inflation, there is the FOMO as things will get more expensive.

 

[Koolau]

And Mortgage holders, nothing like paying off a debt with decreasing value dollars.

Personally, I would like inflation to be zero. But even store owners don't want that, as then I could put off buying X for 3 years knowing it's going to be the same price. With inflation, there is the FOMO as things will get more expensive.

Which is another reason that Central banks don't like deflation (or even zero inflation"). People put off buying things. It's a vicious cycle.

 

[Spock]

Which is another reason that Central banks don't like deflation (or even zero inflation"). People put off buying things. It's a vicious cycle.

But people will still buy things when they need/want the things. You can only put off buying toilet paper so long....
Inflation is just a whip to drive people to accelerate future purchases which also drives cycles of higher inflation. So the economy runs at it's non-accelerated pace... probably more stable than when artificially stimulated.

 

[Koolau]

But people will still buy things when they need/want the things. You can only put off buying toilet paper so long....
Inflation is just a whip to drive people to accelerate future purchases which also drives cycles of higher inflation. So the economy runs at it's non-accelerated pace... probably more stable than when artificially stimulated.

My mom and dad lived through the depression (dad had it worse than mom - actually going hungry). They described the lack of money - no one had any. If they did, they didn't spend it on "frivolous" things like TP - I'm serious.