Mattress Cash
As a hedge against times of economic difficulty, is it a good idea to stuff our mattresses with cash, as our grandparents were known to advise us, rather than to invest or to lock cash somewhere in a bank vault (a small step up from mattress stuffing)? When we invest we at least have a chance to increase the amount of our cash;but, mostly, all we increase with bank deposits is the fatness of our banker's wallet!So, as much as we may love our banker, we might want to love ourselves a little more and increase our own bottom line by investing in things which will bring us greater security, if not money supply;things like paying off credit card debt, car loans, and mortgages.
Now, personally, I can't in good conscience advise people to either put their cash into their bank accounts or to stash it under their mattresses.
The former course of action might be something to consider only from the standpoint that at least you may get a small amount of interest as an offset against inflation.
The mattress method is, in my opinion, the absolute worst thing someone can do (sorry Gramps).
In the world of economics, where money is concerned, people tend to act according to certain basic principles relating to the value of money (the medium of exchange).
In the face of the declining value of money people will tend to want to use the money while it has a higher value;they will want to use it before its value decreases below its present value.
As an example, a few weeks ago I had to fill up my gas tank.
This was when the price of a barrel of oil was "sky-rocketing" and gold was over $1,000 an ounce.
I thought to myself, "Should I fill up the tank or only fill it half-way to save myself some money, since gas prices have gone up a bit?"I decided to fill it up all the way.
Why? Because I thought, "If I fill up only half-way at the current price and prices are higher the next time I go to put gas in the tank--even if I only fill up half-way again--the same amount of gas will cost me more money.
" In the face of higher future prices, I decided to buy (spend) all the gas (good) I could now because I thought prices would go higher in the future and my money would buy less of the same good then.
Had I decided to only fill up the tank half-way I would have, in effect, been stashing money (the money not spent in filling up the second half of the tank) under my mattress--assuming I did not spend the money saved on some other good.
This is the reason that in the face of the declining value of a dollar people are ill-advised to stuff their mattresses with cash! According to the laws of supply and demand, when you have a high demand for a good and a small supply of the good the price of the good will increase;when you have a low demand for a good that is in great supply then you will have a decrease in the price for buying the good.
When demand for and supply of a good are equal then the price of the good will remain constant--this is called equilibrium.
But, where a good is in a state of price equilibrium can something other than the supply of, or the demand for, the good itself cause prices to rise? Yes!The supply of money (cash)!We see this in our present situation as the Federal Reserve prints more and more, thereby increasing the supply of money.
As the supply of money goes up the value of each unit (dollar) of money goes down.
As the value of each unit of money goes down it takes more units of money to buy a good.
If I have one dollar now and the Federal Reserve prints and circulates enough additional dollars to decrease the value of the dollar I now hold in my hand by ten cents then the current value of the dollar I hold is now 90 cents.
The supply of a certain good in equilibrium has not gone up;the demand for that good has not gone up;but, because my dollar is now worth 10% less than it was before, it will take more money to buy the same good!The price of the good, in terms of money, will be greater!This is inflation.
Inflation (higher prices for goods) happens because the value of money goes down.
You can't protect the value of your cash (its buying power) by hiding it in your mattress.
Why? Because all the time that your cash in sitting there the Federal Reserve is printing and circulating more and more currency into the system--more importantly, thanks to fractional reserve banking, banks are creating more and more money from thin air--devaluing the buying power of your cash.
Let's say that you stash the cash in your mattress for three years; all the while, the Federal Reserve is printing and printing currency and devaluing the dollar by 3% each year.
At the end of the three years you dig out some cash from your mattress to buy some food.
What once cost you $1 three years ago now costs you $1.
09 (actually , it will cost a bit more , as it will be an increase of 3% on top of the each preceding 3% increase)!To your astonishment, you find that you now have to pay 9% more for food than you did three years ago! This is inflation on a small scale!Taking post-WWI Germany as an example of central bank inflation-run-wild over a short period of time, where one year an ounce of gold cost less than 100 Marks and just two years later the same ounce of gold cost billions of Marks, there isn't a mattress in the whole world big enough to hold all the money you would have to stuff into it to overcome that degree of inflation! Sorry again, Gramps.
Now, personally, I can't in good conscience advise people to either put their cash into their bank accounts or to stash it under their mattresses.
The former course of action might be something to consider only from the standpoint that at least you may get a small amount of interest as an offset against inflation.
The mattress method is, in my opinion, the absolute worst thing someone can do (sorry Gramps).
In the world of economics, where money is concerned, people tend to act according to certain basic principles relating to the value of money (the medium of exchange).
In the face of the declining value of money people will tend to want to use the money while it has a higher value;they will want to use it before its value decreases below its present value.
As an example, a few weeks ago I had to fill up my gas tank.
This was when the price of a barrel of oil was "sky-rocketing" and gold was over $1,000 an ounce.
I thought to myself, "Should I fill up the tank or only fill it half-way to save myself some money, since gas prices have gone up a bit?"I decided to fill it up all the way.
Why? Because I thought, "If I fill up only half-way at the current price and prices are higher the next time I go to put gas in the tank--even if I only fill up half-way again--the same amount of gas will cost me more money.
" In the face of higher future prices, I decided to buy (spend) all the gas (good) I could now because I thought prices would go higher in the future and my money would buy less of the same good then.
Had I decided to only fill up the tank half-way I would have, in effect, been stashing money (the money not spent in filling up the second half of the tank) under my mattress--assuming I did not spend the money saved on some other good.
This is the reason that in the face of the declining value of a dollar people are ill-advised to stuff their mattresses with cash! According to the laws of supply and demand, when you have a high demand for a good and a small supply of the good the price of the good will increase;when you have a low demand for a good that is in great supply then you will have a decrease in the price for buying the good.
When demand for and supply of a good are equal then the price of the good will remain constant--this is called equilibrium.
But, where a good is in a state of price equilibrium can something other than the supply of, or the demand for, the good itself cause prices to rise? Yes!The supply of money (cash)!We see this in our present situation as the Federal Reserve prints more and more, thereby increasing the supply of money.
As the supply of money goes up the value of each unit (dollar) of money goes down.
As the value of each unit of money goes down it takes more units of money to buy a good.
If I have one dollar now and the Federal Reserve prints and circulates enough additional dollars to decrease the value of the dollar I now hold in my hand by ten cents then the current value of the dollar I hold is now 90 cents.
The supply of a certain good in equilibrium has not gone up;the demand for that good has not gone up;but, because my dollar is now worth 10% less than it was before, it will take more money to buy the same good!The price of the good, in terms of money, will be greater!This is inflation.
Inflation (higher prices for goods) happens because the value of money goes down.
You can't protect the value of your cash (its buying power) by hiding it in your mattress.
Why? Because all the time that your cash in sitting there the Federal Reserve is printing and circulating more and more currency into the system--more importantly, thanks to fractional reserve banking, banks are creating more and more money from thin air--devaluing the buying power of your cash.
Let's say that you stash the cash in your mattress for three years; all the while, the Federal Reserve is printing and printing currency and devaluing the dollar by 3% each year.
At the end of the three years you dig out some cash from your mattress to buy some food.
What once cost you $1 three years ago now costs you $1.
09 (actually , it will cost a bit more , as it will be an increase of 3% on top of the each preceding 3% increase)!To your astonishment, you find that you now have to pay 9% more for food than you did three years ago! This is inflation on a small scale!Taking post-WWI Germany as an example of central bank inflation-run-wild over a short period of time, where one year an ounce of gold cost less than 100 Marks and just two years later the same ounce of gold cost billions of Marks, there isn't a mattress in the whole world big enough to hold all the money you would have to stuff into it to overcome that degree of inflation! Sorry again, Gramps.
Source...