what if i told you that in 10 years, every dollar you have would be worth 5 cents or less?  what would you do differently today?

i ask this question because my general sense is that most people really don’t have a firm grasp of what is happening with our economy right now.  and i know most people find economics a topic as interesting as eating sand.  so i’ll try and make this fun.  i’m just going to throw out a few facts.  would love to hear your thoughts of what you would do differently today knowing what you’re about to read.

1)  Up until Sept 2008, there was roughly 825 billion paper, U.S. dollars floating around our planet.  It took about 100 years for the U.S. government to print those dollars into existence.

2)  During the course of those 100 years, the purchasing power of each of those dollars has declined 95% (ie. the purchasing power of $1 eventually became 5 cents).  Now here’s the brain twister.  Over that same 100 years, things (jeans, gas, cars) seemed to get much more expensive, but in actuality, they really didn’t…it just required more dollars to buy the same amount of stuff (so things appeared to go up in price).  What?  That doesn’t make sense?  How does this happen?  Well, every time the U.S. Gov’t prints another dollar out of thin air, it makes all the other dollars in existence worth incrementally less (that’s basically the definition of inflation).  Another way to look at this inflationary phenomenon is that it requires more dollars to buy the same amount of things because the value of those dollars are in continual decline as a result of the gov’t printing dollars.  Got it?  Remember when gas and milk were 50 cents a gallon when we were kids?  Oh yes, life was much simpler back then…  (btw, if you’re wondering why stuff seems so expensive today vs. how much  you make, this is one of the main reasons.  but that is a discussion for a later date.)

3)  On Sept 2008, when the U.S. economy was about to “go of the cliff”, the U.S. Gov’t embarked on their economic strategy of last resort –  they turned on the printing presses and printed a crapload of dollars (the gov’t calls this “quantitative easing”).  How much?  Since the Economic Crash of Sept 2008, the U.S Gov’t has printed roughly 2.5 Trillion dollars.  In less than 1 year, the U.S. Gov’t has printed almost 4 times the amount of dollars currently in existence before the economic crash (if you will recall, that original 825 billion dollars took 100 years to print).  And remember, for each dollar the U.S. Gov’t prints, the value of all the other dollars in existence (stuff sitting in your savings accounts, your wallet, your stock portfolio, etc.) goes down.

woman burning German money for heat - 1923 German hyperinflation

So what does this mean for you and me?  well, here goes… every nation in recorded history that has ever embarked upon “quantitative easing” (ie. money printing) in order to save their economy has seen their paper money become completely worthless.  and if you lived in any of those countries when the currency massively inflated, your cash, savings, investments (anything denominated in that inflating currency) went straight into the shitter…it went to zero or near zero.  no joke.  you could get more out of burning a hyperinflated piece of paper money for heat rather then trying to spend it.  and where does the U.S. sit in comparison to the other nations in history that resorted to printing money to save their economy?  Number one.  The U.S. Gov’t is printing money at a rate never seen before…ever.  even Warren Buffet, the ultimate pro-america investor, has publicly stated that within 10 years, America is going to see serious inflation (ie. stuff will get a heck of a lot more expensive) and the dollars that you have in the bank are going to become worth much, much less.  And when Warren Buffet says “within 10 years”, it can mean by 2010, 2011, 2012, etc.  The Oracle of Omaha does not mince words…

Regardless of what’s happened, the inflation genie is out of the bottle.  Inflation is coming.  Shit’s going to get a lot more expensive (well, at least appear to get more expensive) and the U.S. dollar is going to become worth less.  By how much?  Only time will tell.

Thoughts?

btw – i know some of this stuff seems a bit heady.  so here’s a list of stuff and potential prices that could happen in a few years if a medium level of inflation happens (not the armageddon scenario)…

1. Gas – $10/gallon,
2. In N Out #1 Combo Meal (double double, drink, fries) – $20
3. Movie ticket – $60
4. Popcorn @ the movies – $50
5. Honda Accord – $100,000
6. Nice dinner for 2 @ Morton’s steak house – $700
7. 2 bedroom, 2 bathroom condo in a non ghetto part of LA – $2,000,000
8. plane ticket to hawaii – r/t economy LAX-HNL and back – $5,000
9. lap dance at Olympic Gardens in Las Vegas – $200/song