Debt Spirals and the Case for Hard Assets
Dollars can be printed endlessly, so invest in things that will hold or increase in value.
The national debt recently crossed the $34 trillion mark and is accelerating. It took about 250 days to get to $31 trillion and $32 trillion and quickened to about 100 days to get to $33 trillion and $34 trillion. This spending rate — of money the government doesn’t have — is at the rate of $10 billion per day or $416 million per hour. You know who will pay it back? You, me, and our children in the form of higher taxes, inflation, lower social security payments, and later social security retirement age eligibility. As I’ve already discussed, the inflation consequence of all this spending is pretty dramatic, with one example being the cost of groceries going up by 25% since 2020. It’s not that the value of bananas and sliced cheese has increased, but rather the value of our currency has gone down, therefore necessitating the need to pay more.
There doesn’t seem to be anything we can do about the spending, as neither political party is addressing it. But we can do something to protect our savings from dwindling away. And that is to trade our devaluing dollars for assets that will hold their value. The way I think about this is to look around and see what holds its value for me. For example, I have an iPhone and couldn’t do without it. It has real value, connecting me to the outside world and keeping all the information in the world at my fingertips. Apple makes the iPhone, has solid earnings, and therefore is a good place to invest in my opinion.
And then there’s gold which has held its value for centuries. Because it’s difficult to mine gold, its value stays relatively constant. One way to look at this is to see how many ounces of gold it takes to buy a house. Since 1979, it’s averaged out to 218 ounces to buy an average house. At today’s gold price of $2,157, that’s $470k. According to the Federal Reserve, the actual average house price today is $417k, so that’s close given that the ratio fluctuates over the years. But it shows that these two assets, homes and gold, have real, stable value over the years. BTW, the average house price in 1979 was $63k making today’s average over 6x more expensive. The value of the average house has stayed the same, but the value of the dollar has dropped dramatically.
Bitcoin is more speculative, but I find it intriguing. Like gold, it’s difficult to mine and has an even more limited supply, with a cap on the maximum quantity that can be produced of 21 million (19.6 million have been mined so far). The mining difficulty or Proof of Work model, along with its scarcity is what gives bitcoin its value. And it’s now being more accepted by traditional banks and financial companies, especially since bitcoin ETFs have become available. These ETFs also make it much easier for the average person to invest.
To sum up, the dollar looks like a loser due to gov’t spending and the resulting inflation, and some assets that will hold or increase in value include companies that produce valuable products, real estate, gold, and bitcoin.
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Disclaimer: The information provided on this blog is for informational purposes only and should not be considered as professional financial advice. I am not a licensed financial advisor, and any decisions made based on the content of this blog are at your own risk.
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