Inflation and Moral Decay
In When Money Dies, Adam Fergusson points out the moral decay that infected German society as inflation grew after the war (eventually turning into that devastating hyper-inflation we've all read about). You may not be familiar with that infectious and lethal moral decay, so here's a description from the book:
It was a slow process over a decade or more; so slow that really it smelled of a slow death...In between were times when the mark seemed to stop devaluating, and each time we people got a bit hopeful. People would say, 'The worst seems over now.' In such a time Mother sold her [tenanted] houses. It looked as though she had made a good business deal, for she got twice as much cash as she had paid. But the furniture she bought...had gone up five times in price and...the worst was not over. Soon inflation started again with new vigour, and swallowed bit by bit the savings accounts of Mother and millions of others.
This reminds me why having cash is so important today. It's hard for me to imagine how we won't eventually suffer from price inflation (the kind you see in everyday prices, as opposed to the kind we get now when different asset classes become inflated because of the Fed's easy money policies). So if prices jump for some asset (I wouldn't count on houses going up anytime soon, but things like stocks may rise) and you go out and sell that asset, and you take your gains and keep the cash - well, what are you going to buy with the cash you get?
If you sell a stock that's gone up and buy a bond today, you're buying a bond that's gone up and is overpriced. Ditto for just about anything else you buy - except, of course, houses, which have just flopped and don't seem to have any pep left at the moment.
But if you hold the cash, you know the cash is going to lose value over time too. You now that inflation will eat away at the purchasing power of the cash.
Back in post-World War I Germany, people lost purchasing power no matter what they did. Is this similar to what we're facing - or might be facing - now?
In any case, the constant losing of the value of money eats away at people. While we're not coming off a big war like the Germans were after World War I, our morals have been decaying for a while. And I wonder whether the money losing value isn't making the moral decay worse, just like it did to the Germans after World War I.
It was a slow process over a decade or more; so slow that really it smelled of a slow death...In between were times when the mark seemed to stop devaluating, and each time we people got a bit hopeful. People would say, 'The worst seems over now.' In such a time Mother sold her [tenanted] houses. It looked as though she had made a good business deal, for she got twice as much cash as she had paid. But the furniture she bought...had gone up five times in price and...the worst was not over. Soon inflation started again with new vigour, and swallowed bit by bit the savings accounts of Mother and millions of others.
This reminds me why having cash is so important today. It's hard for me to imagine how we won't eventually suffer from price inflation (the kind you see in everyday prices, as opposed to the kind we get now when different asset classes become inflated because of the Fed's easy money policies). So if prices jump for some asset (I wouldn't count on houses going up anytime soon, but things like stocks may rise) and you go out and sell that asset, and you take your gains and keep the cash - well, what are you going to buy with the cash you get?
If you sell a stock that's gone up and buy a bond today, you're buying a bond that's gone up and is overpriced. Ditto for just about anything else you buy - except, of course, houses, which have just flopped and don't seem to have any pep left at the moment.
But if you hold the cash, you know the cash is going to lose value over time too. You now that inflation will eat away at the purchasing power of the cash.
Back in post-World War I Germany, people lost purchasing power no matter what they did. Is this similar to what we're facing - or might be facing - now?
In any case, the constant losing of the value of money eats away at people. While we're not coming off a big war like the Germans were after World War I, our morals have been decaying for a while. And I wonder whether the money losing value isn't making the moral decay worse, just like it did to the Germans after World War I.
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