Kerby Anderson

Yesterday I talked about apples and inflation. There is another way to think about the inflation that has been part of our economy for the past 100 years.

The supply of U.S. dollars has been expanding on average about 7 percent each year for the last century. That means the value of dollars is cut in half about every 10 years. Just use the “rule of 72.” Divide 7 percent into 72. That means the half-life of the US dollar has been about 10 years.

We may not notice the decreasing value of dollars until we get even higher inflation. But think of what a 10-year-half-life for the dollar means to you. For me, it means that money I put into a Wells Fargo savings account when I was in grade school has been cut in half six times.

The U.S. dollar is still the reserve currency of the world. And yet this is what happens with the best fiat currency in the world. If you hold your savings in cash, you are losing value every year. If you hold some of your savings in assets, the value of the asset usually goes up simply because it takes more dollars to purchase it. But for it to appreciate, your asset has to be both scarce and desirable.

Now, imagine if you lived in Venezuela or Argentina or Lebanon or Turkey. If your country increases the currency each year by 18 percent, your currency’s half-life is 4 years. If your country increases the currency by 30 percent, it has a 2.5-year-half-life. That is why citizens in these countries can never get ahead.

When I hear people tell me that financially they are just “treading water,” I am tempted to tell them that they are really sinking. Printing more U.S. dollars makes everyone poorer unless they have assets appreciating faster than the money printer.