Putradinar | Malaysia

This Blog Is About Gold | Emas and Ways To Own Gold Bar and Gold Dinar.

May 5, 2010

Fiat Money & Inflation ???

Posted by PutraDinar

In this article, we want to share the problem that been created by paper currency. First let’s make us clear what ‘inflation’ is?

Inflation can be define in many words and phrase, the most popular one that can be heard are increase in prices of goods and services resulting in more paper money needed to buy the same amount of thing in the past. In other words each unit of paper money can buy less goods and services. This means that your purchasing power of medium of exchange or unit of account is getting weaker over time. It is obvious that there were increase of price everywhere around you. Now you don’t get ‘roti canai’ and ‘the tarik’ for Rm1 no more. The ingredient still the same but the price differ and the economist told us it was the inflation. So if we want to survive the inflation, we have to store the paper money in something that grow more than the inflation rate which can be measure by consumer price index (CPI) or you can choose something that value on its own and not assured by third party.

Now that you know what ‘Inflation’ is, do you think its worth to store your wealth in something that decreases in value? If one year the inflation rate is 1% annually, for ten years 10% of your paper money buy less goods and services. In 1998 Asian was hit by financial crisis and result in high inflation rate among Asian countries (Malaysia:5.293, Indonesia:58.02,). We are more lucky than Indonesia manage to survive the hit but history shows that paper money can be easily speculated.

World has shown how bad paper money are, it’s not like we don’t have prove. Zimbabwe has face 'hyperinflation' in 2008 after they suspended their own currency, there’s plenty of zero on the Z$ notes until the Governor has to redenominated by removing the zeros on Z$ notes. On 2 February 2009 a final denomination was implemented by removing 12 zeroes, before the Zimbabwe dollar was officially abandoned on 12 April 2009. Picture below shows how bad Zimbabwe paper currency facing inflation with 100billion Z$ they only can buy 3 eggs:

And there was a time in 1923 at Germany where people living there burned their paper money to warm the house rather than using woods because the prices are the same. In this period, they need to use a trolley to carry the paper money only to buy a loaf of bread. Early mention in this article, if you need more paper money to buy goods you are experiencing inflation. Just to inform your thinking, the survivors of the German hyperinflation did so by purchasing gold early in the process of financial problem. Now its clear that its important to store your wealth in a form that more solid and sound medium of storage rather than paper medium of exchange or others paper asset. The best you can do is to be prepared and then hope that it doesn't happen here. This tragic moment can be shown by the picture below:

To conclude this article, your standard of living is more expensive anually is not totally because of demand and supply each goods, it’s the value of paper money dropping. And only you can decide where to put or store your wealth.


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