Part 2 – An introduction to inflation.
Following on from the ‘8 characteristics of good money‘ detailed at Good Money let us continue an examination of the ‘Dollar’ with respect to each. In this post we ask the question – Are dollars a good store of value?
One hundred years ago $US20 dollars could buy you a single, one ounce, gold coin. Now that same single, one ounce gold coin, would cost you $US1,600 dollars.
Over the past 100 years gold has managed to retain its value, being its purchasing power. The $20 in currency however has lost 99% of its purchasing power.
Another way to think about it is like this. The $20 in cash and a 1 ounce gold coin could buy you the exact same thing in 1920 – let’s say a simple 5 day holiday at the beach for the family. Roll around 2020, the 1 ounce gold coin still buys you your 5 day holiday to the beach. As for the $20, well this is lucky to even buy the family dinner.
Time has clearly demonstrated that dollars are not a good store of value.
This loss in purchasing power for the dollars is called ‘Inflation’. A very important concept in your Financial Awakening.
We will examine inflation in more detail in an upcoming post. In the meantime however, if you have any examples of the inflation you are experiencing year to year. Please share in the comments below.