Ron Paul on Dangers of Inflation

Millions of Americans dream of living comfortably in retirement, but that dream is becoming more and more difficult every day. The relative calm and steady growth that took place during the 1980s and ‘90s is long gone, replaced by more and more severe booms and busts. Planning for a retirement that’s 10, 20, or 30 years in the future is difficult enough, but it’s even more difficult when you can’t anticipate how severe or how frequent market corrections will be. Wouldn’t it be nice to be to able to plan for your retirement and know that your assets will be protected in any eventuality?

Inflation Erodes Savings

Retirement planning isn’t easy, and it requires at least some basic financial literacy. That includes knowing the real (not just nominal) rate of return on your investments. For instance, if you have your money in a bank savings account that earns 1% interest per year, but the inflation rate is 2%, your real rate of return is -1%. That means that you’re losing money every year with that investment decision. Financial literacy surveys over the past several years have consistently shown that large numbers of Americans don’t understand that! They just look at the headline number on their investments and don’t even think about inflation.

Even worse, that particular example assumes that we take the government’s inflation figures as accurate. As anyone who has had to pay rent or buy food in recent years knows, inflation is far higher than what the government reports. It isn’t 1% or 2%, it’s more like 5% or 10%. So even investing in a mutual fund or indexed investment that earns a nominal return of 4-6% per year will at best leave you breaking even.

Of course, when financial bubbles burst and stock markets correct themselves, even those minimal returns are wiped out. The 2008 financial crisis saw many older workers losing the majority of their retirement savings within the span of a few months. Decades of working, saving, and investing were gone. In many cases, the value of those investments took years to get back to their pre-crisis levels.

How to Protect Yourself

Financial crises are the unfortunate, but all too predictable consequence of central banks’ loose monetary policies. In the United States, the Federal Reserve System’s market interventions have spurred bubble after bubble, leading savers and investors to think of themselves as rich and well-protected during the boom phase, only to have their hopes and dreams dashed during the bust phase. Given the inevitability of future booms and busts, all investors should look into ways to protect their hard-earned assets.

One sure-fire way to protect your savings is by investing in gold. Gold maintains its purchasing power over time. An ounce of gold in the 1920s bought a quality men’s suit, and it still does today. By investing in gold you are guaranteeing that your investments will maintain their value over time. Even better, gold often performs better than traditional investments when markets are in a downturn. Rather than fret about how the values of your stocks and bonds are fluctuating wildly, putting your money into gold means that you no longer have to have those worries.

Gold isn’t a get rich quick scheme, it’s a long-term hedge against the sinister effects of inflation. Gold isn’t something you buy and sell in day-trading or short-term investment, you buy it to hold it, knowing full well that when you finally want to sell it many years in the future, your money will have been well-protected.