The money I saved as a child would buy one picogram of gold today
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These were Zimbabwe dollars, however, and in the late 1990s it all inflated away to nothing. So much for conscientious saving.
https://www.buybitcoinworldwide.com/bitcoin-uptime/
I dare you to find another internet service (or even banking service) with the same stability.
Also the same software that I downloaded in 2013 still works (although I'm not using it, I have the option to not upgrade).
There was a bail in last month in my country (Hungary) as well: all people who stored their money in Russian banks lost their money over $100000, just like in Cyprus in 2013. They did't even know that their bank was Russian owned. I'm not playing the game of russian roulette with my money anymore.
Sadly OP_CAT operation is disabled (or substring equality operation), which would make lamport signatures available again for high value transactions. I would love it if lamport signatures would be enabled again (it would be quite easy to do), but I'm afraid that there isn't enough concensus to do it at this point, because some people would think that it's wasteful, and also lamport signatures are dangerous, as they can be used only once.
I'm usually overpaying (20 satoshis/byte, usually under $1 for a $2000 transaction), and I always get into the first block, but I never pay $50 fee.
Well, when you put it like that you just convinced me to put my savings into SMTP. Obviously you've identified the key features of a store of value.
Don't mistake the volatility of the USD price of bitcoin (which is based on the erratic, unpredictability of human emotions and massively distrusted market decision making) with the complete and utter lack of volatility of the actual underlying system.
Sea shells and bags of salt were drastically better money than mentally keeping track of favors owed in a small tribe, because we could expand our exchange of favors beyond dunbar's number to cooperate with people we don't intimately know. Gold was much better than sea shells and salt because it's globally scarce and durable. Paper backed by gold was much better than raw gold, namely because it is drastically easier to trade, transport, and fractionalized.
The technical nature of bitcoin isn't special and it can be trivially forked, modified, and a new network started for near zero cost. That's exactly what coins like litecoin and dogecoin did. Copy paste bitcoin code, change the name and some constants, and boom, new money. What makes bitcoin special, and why there can only be one dominant cryptocurrency long term, is network effect. I don't care about litecoin and dogecoin, because barely anyone uses them relative bitcoin. Barely anyone is developing and building on them as a foundational layer. The only reason anyone cares about dogecoin these days is because one eccentric billionaire has a hard on for it, and that's way too small of a bus number to store a significant amount of my wealth in.
The same holds true for any network protocol. I can copy paste libraries for TCP and make modifications that I think will make it far superior to the current form and release it to the world! And nobody except hobbyists will use it because standard TCP has an unassailable network effect. You have to have an extraordinarily compelling reason to change, and even then it will take decades (see IPv4 to v6 transition for example).
The thing about bitcoin, is that it is the first truly digital money. Fiat currencies like the USD have been trying for decades to pretend to be digital, and they'll probably try harder to use blockchains to make it better, but ultimately it's still fundamentally stuck with an analog foundation defended by guns and tight cliques of trusted human gangs, which makes it globally weak relative to bitcoin. That's why bitcoin has a 10-100x advantage over dollars long term. It's natively digital, open, and permissionless from day one.
Question: when one exchanges Bitcoin for a real-world good or service, what enforces the good or service be provided? And on the flip-side of that question: if one provides a good or service before Bitcoin payment clears, what guarantees payment?
The key thing they do is include a third party in the transaction, usually the market itself, who mediates disputes along with a reputation system for sellers. They mostly do it in a centralized way, where the market holds your payment until the buyer confirms or the seller can prove they held up their end. This is a problem because the market can and often does exit scam, so some do this in a decentralized way with 2 of 3 multisig transactions, where if the buyer and seller have no dispute, they can release the money, but if they do, a third party arbitrator can come in and mediate.
Also, higher layer payment protocols like the lightning network effectively clear instantly and trustlessly, with no need to wait for any block to be mined, and are great for minor value transactions.
Finally, replace bitcoin with gold in your question, and ask why that worked for thousands of years.
Guns (well, swords and truncheons before that) and tight cliques of trusted human gangs, mostly. And I think I'd argue the dark net markets work the same way: holding reputation as currency, they provide an incentive for the users not to cheat, but if they cheat, there's no recourse except "Well, guess I'd better find another market." And that's if we discount the few but notable instances of them using actual violence to enforce their norms... Ulbricht of Silk Road got arrested for attempting to put an actual bounty on someone's head.
The blockchain system provides a simple way to very publicly and reliably declare the exchange of meaningful numbers between two pseudonymous identities. Everything else about the market that blockchain exists in is the same grabasstical process that humans have used for exchange of resources throughout all of history.
You need to hold a bit of your local fiat because that's still the most important thing to have for immediate term purchases. Have enough of that and a fiat based income steam such that you don't have to worry about the short term fluctuations of the market price.
Austrian economics still uses the original meaning of inflation (increase in monetary supply), while Keynsian economics uses the change in consumer price index, or more broadly the change in prices.
I prefer to always distinguish the two by writing monetary supply inflation and price inflation instead of just writing inflation, as this conflict between definitions always comes up.
You can say that the monetary supply is very predictable, but that doesn't do much good if the price of goods fluctuate.
It can mean inflation of the price of things, which may be driven by supply constraints OR demand changes OR currency debasement. This is notoriously difficult to calculate a single value for, because all goods and services can oscillate wildly in prices in both direction. Electronics and mass produced things are a strongly deflationary good because they're constantly becoming less scarce while food, education, health care, and housing are significantly inflationary in price, because they're not getting less scarce at faster than demand.
It's impossible to give single CPI style inflation number that isn't deceptive in some way, because to do so, you have to put every person in a box and declare a "standard" basket of goods that everyone is expected to consume. But reality is messy, so my basket of good is likely going to be quite different from yours. Everything from diets, the types of education and housing we choose, the transportation choices available to us, our reproductive choices, and the hobbies we pursue can be radically different, which can mean that your "true price inflation" can be radically different from my "true price inflation" and both radically different from official and heavily manipulated government CPI numbers.
Inflation can also mean the inflation of the currency supply. This is the more traditional definition, and it gives a simpler way to understand whether prices for goods and services are rising because of changes to supply and demand, or if the prices of goods are rising because there's suddenly a lot more units of currency available to chase those scare real things. And of course, when it becomes clear that it's the currency getting rapidly debased, people start hoarding the actually scarce goods and resources, because the money is becoming toilet paper, and that's bad for all of us, because hoarding scarce real world resources that we don't need right now is bad for all of civilization.
In this sentence traditional can either mean "old" or "common". If you meant "old", then I agree, but currently it is not the more common one.
For the sake of clarity, if you only meant the more narrow definition of currency supply inflation in you parent comment then it's probably good to say so.
Saving as a kid really never seemed worth it to me.
It is I think as important to teach children how to spend their money, on what, and get them used to understand how much they got for their money.
As a kid I saved for a long time to buy an Atari Jaguar, and it was a eye opener looking back at the “sacrifices” I made for that result.
If you want to win at life, you “save money” by purchasing non-cash assets like stocks.
I'll be the first to admit to being fiscally conservative: money I can't spend and that is sunk into something else does not guarantee that I get my money back.
I'm losing money on the savings I have every year, which is why I put nearly all my savings into a fund, but then that fund dropped in value almost immediately by 30%, if I had done nothing with my money and bought a top of the line MacBook Pro with 64G of ram, I would have more "money" than I have today; but it all depends on what the value is when I sell out of the fund, there's no guarantee that I'll even get what it currently says I "have" back either.
Savings and investments are different things.
I'm not giving you financial advice - I don't know anything about you or your investment. It just seems fundamentally wrong to me to consider different forms of money (cash, shares of an investment fund, casino chips, etc) as being distinct. Changing forms may have tax implications but it's not like the form protects you from loses in some way. If you keep your money in an underperforming investment it should be because you expect it to go up in the future, not because you are afraid of realizing a loss (which you have already suffered).
> I don't understand the mindset that losses aren't real until you convert them back into cash.
stocks, cash, real estate, etc are all assets, but they behave very differently. in particular, there are some very special attributes to cash: it can be directly exchanged for almost any other type of asset, and the prices of those assets are almost always denominated in cash. simple example: my lease says I owe $1000 each month in rent, not $1000 worth of any asset, but cash specifically. if I have $10k in cash, I can definitely pay rent for the next ten months. if I have $10k worth of some s&p 500 ETF, I a) can't pay rent without converting to cash first and b) risk being forced to sell at a time when my shares are worth less than $10k. I have a good chance of making rent for roughly 10 months, but there's a lot more that could go wrong. of course, cash itself does fluctuate in value just like other assets, but we are mostly insulated from that in the short term by the fact that most legal agreements are denominated in nominal dollars, and that the prices of most material things are much stickier than financial instruments. in short, this is why the concept of unrealized vs realized gains/losses makes a useful distinction.
> It just seems fundamentally wrong to me to consider different forms of money (cash, shares of an investment fund, casino chips, etc) as being distinct. Changing forms may have tax implications but it's not like the form protects you from loses in some way.
nothing is 100%, but different assets have sufficiently different risk profiles that it's worth distinguishing between them. cash is an extremely safe asset in the short term, but almost guarantees a loss in the long term. if you can identify buckets of money that you probably won't need for a long time, it has historically been a good bet to invest them in bonds/stocks/whatever based on your tolerance for risk. it doesn't guarantee a good outcome, but it avoids the guaranteed bad outcome of holding a lot of cash for a long time.
> If you keep your money in an underperforming investment it should be because you expect it to go up in the future, not because you are afraid of realizing a loss (which you have already suffered).
agreed, and this is a common mistake that people make. but this is more people applying the sunk cost fallacy to the concept of unrealized vs realized than an issue with the concept itself.
A better analogy is stocks vs Real Estate. Let’s say you buy a home for 200k, and sell it later for 300k. Every day in between, when you “weren’t in the market”, the potential value of your home fluctuated: it’s entirely possible that halfway in between, the top bid on that day, were it listed on the market, would have been for 6$.
Of course in reality you don’t see all these intermediate hypothetical prices, but in theory they’re there just the same as if you bought stocks and then didn’t look at prices for 10 years.
The fact that there is a price on the open market (the fluctuation of which determines your unrealized gain/loss) does not obligate you to sell at any particular moment: that’s just like owning a home and not caring how much someone would pay for it on Tuesday vs Wednesday because you don’t intend to sell it in the first place.
Lord help you if you bought NFTs of Tweets.
That's literally how I was taught about compound interest: saving money means making weekly/monthly/annual contributions. And that was a regular (non-honors) class in an inner-city middle school.
> Try convincing a kid with even modest arithmetic skills that saving $2 and letting it compound is “smart.”
No, that's idiotic. I think you're beating on a straw man.
I should say that I also don't think this is the best description of how prices actually move, and over the years since I've read the book, I have come to no longer believe in the EMH. That being said, I do still think pointing people in this direction in general is the best thing I can do: even though these ideas will only take you so far, they remain academically productive, interesting, and useful... And most people would do better to approach the markets with more humility and less confidence. Those who are nerd enough to go beyond the EMH will undoubtedly do so on their own and at their own peril. :)
The book is very much in the tradition of Benjamin Graham's The Intelligent Investor, Warren Buffett's value investing style, etc.
Bad part they are mostly scammers or charlatans that are looking how to get that money for themselves.
Except when you don't.
Between 1995 and 2000 I lived in a student house in the UK and one of my housemates (who was also a student, and from my recollection almost as broke as I was back then) was really into investing into the stock market during the dot-com boom.
He bought both Lastminute.com (IPO March 2000 @ 380p/share[1], sold to Travelocity in 2005 @ 165p/share[2]) and Railtrack (IPO 1996[3], went bankrupt 2001[4])
[1] https://money.cnn.com/2000/03/14/europe/lastminute/ [2] https://www.theguardian.com/technology/2005/may/13/business.... [3] https://www.railwaysarchive.co.uk/docsummary.php?docID=740 [4] https://www.independent.co.uk/news/uk/home-news/railtrack-go...
Nothing you do in life is risk free, even keeping cash under your mattress: the fact that there is risk involved does not change that this is how you make money. When you know that you’re guaranteed a loss of ~2%, at best, on cash, and that your expected real return on stocks is positive, well… That’s the point.
At least in the UK, buying into index funds was substantially more expensive back then. I held shares in a retail bank for a time not long after that, for which I had an actual paper certificate! No wonder trading was expensive....
(Sorry, genuine questions) risk of what and compared to what?
Yes, there's inflation negative yield. But especially in the low interest and inflation rate environment that has been the case until possibly recently, the difference between "cash" (i.e. default investment at a brokerage) and other very low-risk investments (e.g. high quality corporate bonds) has been pretty minimal.
One of many, the housewives who saved money from day to day house expenses, had to come out clean to family that they are holding 1000s of currency in old now defunct notes.
Bet on humanity :)
If you've not watched The Big Short (2015)[0], it's a really excellent film.
Bonds aren’t great for building wealth. But they’re fine for preserving it. Saving money via a mix of inflation-indexed and fixed-yield debt will generally preserve your purchasing power over long time intervals.
Most of the world has seen bond owners get eaten almost completely really. Almost all of Africa, large swathes of Asia, much of Europe including Germany and Russia, most of South America...
Were any of these seen, contemporaneously, as low-risk?
The backfire sovereigns in the last 100 years were limited to Austria-Hungary and the Dutch, trading economies derailed by war. The others aren’t trading nations, or were well-established basket cases when they issued their debt.
Just be born wealthy enough to have free money to invest as a child!
The reality is, most people barely can meet their basic needs. If you hate that as much as I do, then vote for politicians that care about wealth inequality.
When you have a buffer only then you can start buying assets.
Until web brokers started I did not even know how to buy stocks. I think most people still don't know how to buy stocks unless they are from really well-off family.
My parents were also not "financially literate" so I had to figure out all kind of stuff on my own.
Downside was for example that I got supper shitty "investment product" so I did not loos much money but if I knew better I would put my money in a better place.
Fortunately I did not get outright scammed but for a lot of people that have to learn as they go it is a real risk so "just saving" and losing some value to inflation might be best option for many.
Same
"Win at life" == "save money" == "owning stocks" ???
Winning at life is about everything that is not about money. Winning at life is being able to be happy no matter how much or how little money you have. Sure, up until one point, more money can help you get happier, but if you don't have the baseline happiness, you will never become happy and "win at life" no matter what. And up until a certain point, not even more money can make you happier if you're already miserable.
We’re talking about money, in a thread about money, on a post about money. At no point did I suggest that money makes unhappy people happy.
And I think you did not mean "win at life" in as broad a sense as the other person interpreted it. Either that or you two have very different ideas of what "winning at life" could mean.
The interest in my savings account is laughable. It's marginally better than keeping in a mattress.
The mattress doesn't charge bullshit fees. The mattress doesn't arrest you for being the wrong color.
I would think in a situation like that, we would have something similar to what happened to job losses and the stock market cratering like in March and April 2020. Except that cratering and job losses would continue while riots and protests all across would get bigger and bigger. Crime presumably would go up a lot too.
It slips out that your family has $20K in cash at your home…who knows what’ll happen in this dystopian situation.
It's a common occurence u developing countries, people hedge against it by holding foreign currencies and tangiable assets like land. Its not that rare for people to live through multiple devaluations and currency collapses. Ofcourse you don't go around telling people about tour wealth
Yes assets like land would help. However with banks failing like this, someone with more guns and aggression than you or I could come to our homes and take them from us in areas where LEO are not being paid and thus not doing anything.
With the failing banks and such, tracking down who owns what will be much more difficult when things get better. Changing failing bank documents can’t be the hardest thing in this situation.
In case of the banking system collapsing in a modern developed country? That’s such an extreme situation I’m not sure if holding cash would be the right hedge against it. That sounds more like a canned food and flour bags kind of time.
If a bank fails, the deposit insurance also fails and the government can’t step in either that will undercut the trust in all other banks too. I would expect a chain reaction of follow-on bank collapses and hyper-inflation.
How do you imagine that happening? Does it look like to you that the west is going to loose so bad that all the investments loose their value? Or you are banking on a nuclear winter?
The reason to do long form math on paper is to get a feeling for the mechanics of math so that you can extrapolate it to more complicated math. The reason to save is that there are minimum barriers to cost for investiture in capital, and capital pays dividends and grows in a way consumables don't (unless it doesn't! Nobody wins in a civil war).
SPEND: They are encouraged to spend 1/3rd of the money. Whatever they want to buy. They have become online discount shopping experts, whether getting rubiks cubes, roller blades or harry potter merchandise.
SAVE: 1/3rd goes into savings, which we will let them tap once they need it. Not sure when: once they are 17/18 perhaps? In all cases, it will be a big payout compared to the amounts they are used to "spend".
CHARITY: And 1/3rd goes to charity envelop. So whenever an opportunity comes up, they can use that towards any charity event. Good thing is that they usually spend it all in one go. Great!
LT - 40% ST - 30% Spend - 20% Charity - 10%
I don’t recall what the term was for short term, maybe a few months.
Something about it worked. Today I follow a similar system, tho percentages are different (spend obviously higher) and no charity.
0: https://twitter.com/CNBC/status/1076173906455810050?s=20&t=Z...
See: Bill & Melinda Gates Foundation, etc.
How is that foundation exploiting the first step, in practice?
https://www.socialvelocity.net/the-problem-with-nonprofit-ev...
In many rpgs as you progress through the game the need for expenditure diminishes to zero. Different case if it is mmo or designed around grinding though.
[0]: https://www.desogames.com/virtual-labor-and-lessons-from-eco...
What if it never makes sense?
One thing I didn't realize until embarrassingly too late in life is that savings should only function as a buffer for emergencies. Anything else is just burning your money since there haven't been savings accounts that consistently beat inflation even in the US.
I was fed these same myths as a kid, and earnestly believed that part of success in life was to have a huge savings account one day. I remember well all those "power of compound interest" talks in grade school, about how working hard and saving was the path to wealth. But that's all a complete myth.
The real irony is that anyone who has built themselves serious amounts of wealth typically does so by making high risk/high reward choices. Teaching kids to play it safe and building saves, different desires to the future etc. doesn't make any sense in the world we live in. It's ultimately bad advice. No one I know who ended up very successful did so by living conservatively and within they're means. They're people who aggressively pursued improving their conditions, often times because they were forced too precisely because they didn't have a savings.
The lesson of "save money, life within your means and make conservative choices" sounds nice, but in the world we live in today this is a recipe for short terms austerity and long term decline.
This also seems like bad advice. You can aggressively pursue higher earnings and simultaneously spend conservatively (on anything that does not contribute directly to higher earnings). You seem to be setting up a false dichotomy.
That said, I agree that at least in free market economies, high risk / high reward + tremendous luck is a requirement for extreme wealth generation.
You have the logic backward. If it was "typically, anyone who made high risk/high reward choices has built themselves serious amounts of wealth", it would be good advice, but what if most of those people failed terribly? An example is pursuing a career as an artist/sportsman which are common high risk/high reward aspirations of children which most people fail at.
I also had that same late lesson in saving being useless. Luckily, I learnt it by buying a house which appreciated fast and showed what a disaster savings would have been.
The better way to learn this is to be able to look at a graph like this: https://inflationchart.com/spx-in-m3 understand it, and make an informed decision taking in to account your personal risk tolerance.
Kind of an extreme way to live but it used to be possible.
Yes, opportunity cost is huge for kids, and they might rationally spend all money immediately. But that's still not what we encourage...
So we'll put our finger on the scale and adjust situations to make saving beneficial.
The concept of "save money and put your loose change coins into a piggy bank" could be much older than how much disposable income kids[1] today have. My hypothesis: Maybe the intended lesson was more coherent with the reality a century ago.
Here is the first graph I found with a search engine of USD purchasing power: https://www.statista.com/statistics/1032048/value-us-dollar-... . After the Napoleonic wars until WW2 or so the purchasing power of 1 U.S. dollar spend most of its time increasing followed by sudden drastic drops in value during ... the Civil War and WW1.
[1] Or a random HN user got as a kid.
Also saving during 20s for this reason - if you're just starting out in a career and expecting your income to rise rapidly the money you save on interest is going to be irrelevant.
Saving in my twenties gave me good returns despite issues starting my career but that involved some exceptional circumstances from getting in on Tesla relatively early.
It's generalizing of course, but I've noticed this in friends I grew up with. They had avoid debt mentality, saved a bunch of money compared to their income, etc. The money they saved up didn't really enable anything significant, and they had to miss out on a bunch of stuff to make the budget.
Now we're in our mid 30s they have a bit of money stashed up, still single, still trying to figure out what they want in life. I've paid off the debt I've racked up in 20s, make considerably more than them (in no small part thanks to the more risk taking behavior) and the experiences I've had helped me move forward in life.
You only get to go through youth once, even if you have millions in 40s-50s it won't make you young again. You'll be making money your entire life.
My kid saved about $200 in savings in elementary school. He parlayed that into a diversified stock portfolio, now around $4k several years later.
The rest of your comment makes sense. I didn’t really start saving until my late 20’s. It just made waaaay more sense to invest any disposable income in myself.
So far so good. Thanks to those early investments in myself I’ve been able to save more in the past ~5 years of my career than my cumulative earnings of the first 10 years.
I remember thinking my friends and peers were wasteful for spending their earned money on a new graphics card or even buying a $2 drink when they stopped at the gas station instead of saving what was required for necessary expenses, setting aside a little bit for fun, and saving everything else. Turns out I was the fool.
I am happy for that habit of saving, but I wish I had more perspective and reduced my savings rate to focus on having a buffer instead of saving for retirement at 16. I guess that's what growing up is for.
Personally, I never would have had an opportunity to go for a high paying job if I hadn't saved up a lot of money at a time when I was earning little. So not only was a high paying future not a sure thing, it was probably only possible because I didn't act as though it were.
It's easy to take for granted all the luck and skill that our past selves benefited from, making past caution seem foolish in hindsight. Seldom was it actually guaranteed.
I agree about the sort of 'goalless' saving that I do now though.
Not that I don't need a job anymore, but it did serve me well (the stock market rising continuously for 10 years might have helped too). I definitely wouldn't talk anyone out of it with that sort of reasoning, maybe the only benefit is sparking an interest in math and computers.
It was a single (real) $100 trillion bill from Zimbabwe that I carried in my wallet for fun. I assume they thought for some reason it was US dollars?
https://www.banknoteworld.com/zimbabwe-currency/100-trillion...
I don't know how much they sell for now, but I was lucky to get one for $20 when they were normally going for $40 on eBay.
I forgot the exact result, but I once calculated the value of a 100 trillion Zimbabwe dollar bill when it was printed, and it came to something like 0.06 USD (6 cents).
There are also fakes, most of which admit in the description that they are fakes, and include extremely large numbers like 10^33.
The highest number that you can get cheaply and that is not fake seems to be the 50 billion. They sell for about five dollars, which given the economics of ebay is probably as low as you can expect.
At one point I had a hundred stack of them somewhere.
I'll try and get a copy. This was 8 years ago, but the lab will probably still have a copy. I felt like Dr Evil... one hundred trillion! All I could think of was this skit:
Maybe next gen parents will
Even if you completely trust the people in charge today, you just can't ever be certain that they'll be in charge forever or that the environment won't change in a way such that they break your trust.
Looking back I think that was a good middle ground. At least as a 5-10 year old it was a quite concrete target yet also showed me the benefits of saving money.
I recently purchased a subscription to The Economist and have been listening to the top stories on a daily basis. That said, it seems to be more politics than economics.
We're in a true "Emperor's new clothes" moment.
Even the “worst” discipline, macroeconomics, tends to yield high quality predictions. Larry Summers was screaming from the rooftop about how the Covid stimulus would result in inflation
Personally I'd stick with Boglehead type advice and focus on your career(assuming you're in tech). My day job is the only thing that's ever consistently generated wealth for me.
I am in a special situation having to make up for lost time being out of the market and being divorced, so I am trying riskier things that I really wouldn't recommend for anyone else.
Once you go down the rabbit hole of trying to understand macroeconomic trends and betting accordingly, well, it becomes rather distracting. I can't recommend it.
If you really want to 'go there' well... I don't know. I follow a random collection of FinTwit folks. Lately I like Doomberg and "The Maverick of Wall Street". I also follow folks like Mohamed El-Erian, Buffett/Munger and Jeremy Grantham
Reading the annual notes / investment updates by certain more prolific managers can be useful, but they all have their own bias and honestly its not particularly insightful from an economics perspectives. (More finance than economics)
It can also confuse new investors who might not realize that USD-denominated assets don’t lose value like USD itself. This may seem obvious to anyone who has studied Econ or investing, but it’s actually a very common misunderstanding among people who are new to the concept of inflation. Unfortunately, this misunderstanding is often misused to scare people into thinking their only options for avoiding inflation are gold or cryptocurrency, which isn’t true at all.
For 99% of us working our comfortable tech jobs in stable countries, it’s more enlightening to consider how the author would have done with S&P 500 or gold (hint: Gold loses by a lot).
That is, I could replace 'USD' with any other currency in both occurrences in the phrase: `USD-denominated assets don’t lose value like USD itself.` and it would still be true, right?
... and if he'd bought into the S&P 500 (Vanguard launched the First Index Investment Trust now the Vanguard 500 Index Fund in 1976 [2]), it would be worth about about $190 in today's USD. Which you could sell to buy about 2.99g of gold today (3 trillion times as much as reported).
While obvious you'd have to be extremely prescient to put your money in a completely different type of fund that had launched only just that year and at the time they would not have touched such small dollar investments.
... but today we now know that Bogle's idea was actually pretty good and you really can make such small dollar investments (eg. Fidelity's no-fee, large cap fund has no minimum to invest (FNILX), or you could buy a fractional share of a variety of large cap ETFs: SPY (SPDR), IVV (iShares), or VOO (Vanguard) from a variety of brokerages). Of course, a minor wouldn't be able to own shared directly... so, get your kids a UTMA account [4].
[1] https://en.wikipedia.org/wiki/Historical_exchange_rates_of_A... [2] https://en.wikipedia.org/wiki/The_Vanguard_Group#Growth_of_c... [3] https://fundresearch.fidelity.com/mutual-funds/summary/31591... [4] https://www.investopedia.com/terms/u/utma.asp
The folks getting spooked about inflation right now and reading this thread (it is written in English after all), almost certainly can invest even very small amounts in high quality investment products. There's no need to get fatalistic about saving ("you get diluted into nanoparticles."), it has never been easier for normal people to put their money to work productively.
...and then the stock market gets stopped for a couple of weeks and exchange rate of international currencies becomes practically state-controlled.
> There's no need to get fatalistic about saving
There absolutely is a need, when the life just doesn't work like people here are pretending it does.
It's all just an extremely US-centric view, people there are just lucky to live in a fantastically economically stable environment, but this leads to them being unprepared to potential economic shocks, including not enough support for the discussions of ways to evade the consequences for regular citizens.
Heck an alarming amount of people don’t understand that bonds need to be paid back.
“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually, then suddenly.”
The government prints money, not to have more, but to force economic movement from below. More money handed through social welfare means more money in lower classes hands, and that means more people buying new things and local market activity.
The government does that because most companies with the financial power to invest are be very reluctant to invest in a such unstable economy. Also, most individuals with more money will quickly move the cash somewhere abroad.
So, companies don't invest and richer people are quick ot move their money elsewhere. If the government doesn't act, the economy stalls. But now because the government printed more money, the peso is now less valuable and the economy is now more unstable, feeding this feedback loop.
I’ve seen this said more than I’ve seen people who actually think that. Most people have heard horror stories of hyperinflation and, if anything, are overly weary of inflation than not.
The comment above makes a good point. These types of hyperinflation situations are the result of serious mismanagement and deeper issues. When considering inflation, it’s important to study real resource constraints and any debts that need to be paid back in foreign currencies. All the famous examples of hyperinflation involve issues with these factors.
About ten years later, 1 Brazilian Real is now worth more than 24 Argentine Pesos. Of course, during the same period, Brazil had some crisis too. So, it is much harder for me today to save enough to spend a few days in Buenos Aires. Sad.
Argentina's Consumer Price index rose 6.7% during March. No, not YoY, but MoM. And if you look at history, it's not even a particularly high number. So I'd say that by the definition of most people, the country has a very big, long lasting and structural problem with inflation.
Once people got their paychecks, they would rush to the supermarket to buy as much as they could, by the end of the month they wouldn't be able to buy that much with the same amount of money.
People ran ahead supermarket staff which updated prices so they could buy the same product at a previous price.
Gas stations had long queues during the night when there were news about about gas prices rising.
My father developed and interesting habit: whatever he bought, he would write in the box how much it cost in gasoline liters. That way we could have a good idea of how much each thing really cost. It was somewhat funny many years later finding old boxes written "Custou dez litros de gasolina".
That's genius. I'm going to start using it here for Mexico
This is overlaid with the fact that, in the US:
1. A lot of people (though certainly not everyone) don't use a lot of cash these days
2. Coin denominations have basically been unchanged since I was born--which was... not recently. So you have lower denomination coins that cost more to make than they're worth.
Were the us to try and trade out dollars for NuDollars, they would find the dollar won't go away because the world will still be using it to trade and pay down its debts.
The dollar being the world's international trade currency has a significant anchoring effect that makes it extremely difficult to extrapolate from lessons learned in other countries to the United States.
The problem may be if there is for many years a high unpredictable inflation that is higher than most developed countries. In that case other countries may decide to use Euros, Swiss Franc, Yuanes, Yens or whatever has a more stable value.
It would create an interesting open question how the IMF would respond. In practice, it won't happen because raising the question would (as you noted) bea colossally stupid move for the US for global influence reasons. They have a lot of leverage from being the printer of the world's currency-of-record.
So the AR$1228 of the author were like US$4.97 in 1976, that are like US$25.11 today https://www.in2013dollars.com/us/inflation/1976?amount=4.97 .
Also, the price of gold was like $120/oz https://sdbullion.com/gold-prices-1976 so it was like 1.2 grams
If you've been raised to be a saver, you are well trained at living cheaper/less frivolously. Note that this presupposes that you make enough money to live reasonably and save; I'm not talking about the extreme poverty cases where immediately spending the rare windfall actually makes sense.
By cheaper, I mean one car instead of two, simpler vacations, less eating out, less fancy house, "using up" quality consumer goods instead of constantly replacing them with the latest fashionable stuff (e.g. second complete kitchen makeover in 15 years).
Suppose person A makes X and spends X and saves nothing. Person B makes the same, but spends 0.5X and saves 0.5X. Now suppose an economic disaster where all those savings are wiped out and A and B additionally end up taking a 50% pay cut. Who will continue to live in comfort, albeit with misgivings about not being able to save up again?
Next level is to hire people to manage it for you, but this is completely different level of income.
When I was a child, I saved a little of my allowance to start with, but then rapidly realized that every year I was blowing away (in earnings) my savings from the previous year. Soon my porn and bootleg music high-school business was beating all the savings of the previous year. Then my ad fraud "business" plus my fake reviews "business" was beating that.
I dropped all of that stuff, went to uni for other things and then eventually started engineering later in life than most people and the pattern repeated in earnings. Through sheer luck I happened to make choices that aimed at growth rather than savings.
Pure savings are over-rated. You should hold nearly everything in inflation-protected assets. And loads of these are crazy liquid. Plus, I have friends with whom I have a de-facto liquidity pool. It's sort of a liquidity insurance mechanism: we'll just help each other over temporary liquidity humps.
One of my friends had to leave the US temporarily because of a green card processing delay due to COVID and he knew that I'd cover his mortgage if he needed me to. Helps you sail closer to the wind knowing that only broad-based economic failure can hurt.
In the past I've spent extra money on tools, a house and some gold and silver (as I have a goldsmithing hobby). The house is difficult to unload, at least mentally, pretty good market. The tools have kept their value, but finding a buyer is difficult. The gold and silver are a similar story, but tend to fluctuate in value rapidly.
On the other hand, if you made even a conservative investment like a thin silver chain or a popular book with author autograph, I bet you will get more than your money's worth for that today. If you bought a share of Apple stock - woah, but I guess we couldn't have all known back then.
As adults, yeah we should know better than to keep our wealth essentially in the pockets of politicians. Invest in something that will be useful to your or someone else even many years later, or profit-generating businesses. But there is nothing wrong with children play-learning a simplified version of life rather than immediately having to know the difference between mutual funds and ETFs.
https://www.wolframalpha.com/input?i=one+picogram+of+gold+in...
However it's not something I would throw at a 6-year old. A sharp 8-year old should be able to grok all of it though.
I’ve always wondered what happened to mortgages and loans during those periods. Did borrowers effectively get free houses? Did borrowers not exist?
2. Yes, the number of loans and mortgages was minuscule.
3. Do you think anyone gave out fixed interest loans? :-)))
University, Medical Bills, Housing - all are things that many people (in NA at least) need to borrow money for. Borrowing money is an integral part to move up the social and economic ladder for most people alive today.
1. Many Russians held funds in currencies other than rubles. Faced with sanctions, Putin instituted forced conversion to rubles. So far the ruble hasn't been decimated but this could still go south;
2. Venezuela essentially prevents conversion of currencies. I mean it's complicated. There's a government rate and a black market rate and the country is under completely unjustifiable sanctions; and
3. Argentina is also currently restricting access to foreign currencies;
4. Years ago, Argentinians held funds in foreign currencies. Local banks held foreign currencies against those deposits. When things went south the banks basically packed up all their money, put it on a plane, flew it out and then declared bankruptcy or just threw up their hands; and
5. Some will even point to FDR's sovereign devaluation of the US dollar as another bad example. In the 1930s, the government forced purchase gold for $20/oz (the peg at the time) and then revalued the US dollar at $35/oz.
This last one is a constant point of consternation for gold bugs turned Crypto Andys.
And no crypto isn't the answer here.
My point here is that you cannot overstate the importance of multigenerational wealth creation in the developed world. The dark truth here is that the US has often had a hand in the above events that have essentiaally stolen accumulated wealth from ordinary citizens.
The ruble was worth 0.14 dollars before the war and now is worth 0.12, which is just below a 0.014 reduction in its value, so it has quite literally and almost exactly been decimated, as it was done in roman tradition.
However the reality is that it's modern meaning has changed. See here:
That exchange rate is appalling over time because Argentina relies heavily on USD denominated imports and issues debt denominated in USD to obtain them.
When people think the money they earned in past should be worth same today assume that value of money should grow.
Bitcoin also adds new failure cases such as irreparably losing money through address typos and lost/failed hard drives, not to mention the numerous & exciting failures in DeFi.