Whether intended or not, one of the bad effects of a government-regulated monetary system, is that it creates a disconnect between money and the real things we need to buy. Take food for instance. If we were use hamburger gift certificates instead of the money we use today, we would know that we would get the same amount of food for our money today as we would after leaving the certificates in a box for 10 years. Somehow, we’ve managed to mess up our monetary system such that it is significantly more difficult to depend on it for real needs… like eating or clothing ourselves.
Let’s consider the effects of inflation using terms that we can actually eat. Let’s assume that you had put a 10 hamburger certificate under your mattress in the year 2000, only let’s also assume that someone has allowed inflation to eat your hamburgers without your permission over time. How many hamburgers do you think you would be able to buy today with an inflation adjusted 10 hamburger certificate? By 2017, your 10 hamburger certificate would only buy you about 5.68 hamburgers. This is quite typical, inflation is usually eating away at our savings. There’s a website that makes it easy for you to see how the costs of things have changed over time as a result of inflation. It provides a calculator that allows you to enter your own dates and amounts and see the effect for yourself using the government inflation data.
Try it at: US Inflation Calculator
The problem is that once money is disconnected from something real, it can change in value quietly over time. For much of the United States’ history, our money has been buying less and less over time. There were periods in which inflation went backwards. Yes, that’s called deflation. That might sound good at first, but those times are often harmful as well. One of the most notable times that this happened in our history was the Great Depression. If deflation is happening to money, it’s likely that it’s because people don’t have jobs or money to pay for things they need.
Whether our problem is inflation or deflation, disconnecting money from something that is real is not a very good savings plan. In order to plan, you kind of need to know how many hamburgers you will get to eat, shoes you will get to buy or tanks of gas you will be able to fill. Thankfully, there are still some tools at our disposal that can help us combat the effects of inflation like I Bonds and TIPS. They’re not quite as easy as putting money under your mattress, but at least they are available.