Inflation, Soup, Scotch and Water–Why You Must Invest

Imagine you have a fine bottle of scotch.  And while you aren’t looking your evil uncle Sam drinks a shot of it, and then adds a shot of water back to your bottle.

Hey, the bottle looks like you have the same amount of scotch, doesn’t it?

And old uncle Sam is hungry and notices you have a nice pot of ham and bean soup so he does the same thing.  He eats a bowl, and then adds a bowl of water to it.

Looks like you have the same amount of soup too, doesn’t?

And the scotch still tastes pretty good and so does the soup.

But your uncle Sam keeps doing this day after day.  And pretty soon, the scotch has a flat taste to it and your soup is all watery and has one bean left in it.  It’s all pretty worthless.  So bad at this point you probably couldn’t give it away.

Over time your soup and scotch have lost their value.  You’d be lucky to give them away.

So what does this have to do with investing?  Because the real Uncle Sam goes out every day and spends more money than he has.  Then he just creates that extra money he spent (and didn’t have) by printing more dollar bills and pouring them back into the economy.  Just like uncle Sam poured water back into your scotch bottle and soup pot.

This makes every dollar you save worth less every day.  So you have to invest just to keep up.

This Uncle Sam has a name.  It’s the Federal Reserve Bank doing this for the United States government – and I might add, too its citizens.  Every day.

So just like your soup and scotch lose value every day because they are being watered down, your dollars lose value too –  every day – because they are also being watered down.

So you have to spend more dollars when you go to buy things.  To you and me it looks like prices are going up.

But that’s not what’s really going on.  The value of the things we buy is staying pretty much the same, it’s just that the dollars are worth less so we have to pay more dollars for them.

Here is a real example for you.  When I started driving at age 16 in Springfield, Missouri in 1966, gasoline was $.25 a gallon.  Coins were made of silver back then.  And the dollar was backed by silver too (they actually said “Silver Certificate” on them).

I saved some of those quarters.

Three weeks ago I sold one of them for $4.25.  That’s the price of a gallon of gas at the pump today.  In other words, gasoline is still just a quarter, $.25 a gallon, measured in silver, instead of inflated dollars the U.S. government robbed us with every year.

See how they just kept watering down the dollar.  Get the picture?

Many Americans don’t.  They don’t realize what inflation is, and that it is the government robbing them every year by printing more and more paper dollars that are worth less and less.  L

like watering down your scotch and soup.  They’re worth less every time you do it.

This is why you must invest.  It is the only way you can keep up with inflation (and actually beat it).

It is the only way you can keep your savings from losing value every year.  Which is what they will do if you just put them in a savings account or a CD.  You may get more dollars, but they will be worth less and less.

So resolve that you are going to learn more about investing so you can stop losing and win at this game.

Just keep reading  That’s what we’re here for.

And keep a close eye on your scotch and soup – J. Daniel

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