Save Money, Not Dollars

What kind of “money” are you saving? Will your portfolio’s purchasing power stand the test of time? Can it stand the test of quantitative easing? …At $120 billion per month?

As the Federal Reserve and central banks around the world continue to dilute their currencies at a break-neck pace, it becomes increasingly important to ask these questions and evaluate the true strength of our portfolios.

At the recent Federal Open Market Committee, the Federal Reserve announced that it would continue quantitative easing at its current pace. An appalling idea to many, this means that the Federal Reserve plans to continue using a monetary policy – one that was first used as a “temporary” measure in the Great Recession and was termed “unconventional” until recently – that essentially injects money into the economy and encourages investment by creating new currency from nothing.

In March, we shared the Federal Reserve’s announcement that quantitative easing would be unlimited. Now, six months and trillions of dollars later, they have no intent to ramp down.

According to their official statement, they plan to “continue to increase System Open Market Account (SOMA) holdings of Treasury securities by approximately $80 billion per month,” and “continue to increase SOMA holdings of agency mortgage-backed securities by approximately $40 billion per month.”

That’s $120 billion of currency that will be created every month. To put it in perspective using CNBC’s report that the median American annual household income is $56,516, that means more money is created out of nothing each month, than can be earned by more than two million average American households in an entire year, combined.

It doesn’t take a professional economist to understand that this means bad things for the U.S. dollar. The more fiat (not backed) currency that is created, the less it can be worth. The more the dollar loses its value, the less purchasing power most people have in their wallets, savings accounts and portfolios.

Physical gold and silver, however, don’t answer to the Federal Reserve. They’ve been used as stores of value since long before any modern countries and central banks were in place. Rather than being subject to the whims and irresponsibility of government authorities, they are generally only ruled by old-fashioned concepts like true supply and demand.

In terms of purchasing power (what goods and services you can acquire with what you have) gold and silver are really one of the few types of “money” that have stood the test of time. For example, one U.S. dollar earned in 2000 can only purchase $0.65 of goods and services today. In contrast, one ounce of gold purchased in 2000 at $281 is worth $1,268 today, after adjusting for inflation. Likewise, an ounce of silver purchased for $5.30 in 2000 is worth $17.80 today, after adjusting for inflation. A 350% increase and a 235% increase in buying power (before taxes), respectively.

With all of this in mind, we arrive again at our original question: what kind of “money” are you saving? Is it the type that seems bound to all-but-evaporate as our government continues its unchecked printing and spending sprees? Or is your wealth protected from politics by physical metal that has maintained purchasing power through the years?

If you’d like to learn more about the importance of purchasing power as you plan for the future, or if you’d like to better understand how gold and silver have maintained their purchasing power and can maintain your wealth, please contact us today.