Wednesday, 18 November 2020

The Cash Horde

So, there is a situation that is evolving that apparently people and businesses are sitting on a huge pile of cash. Unprecedented, apparently. 

We can all understand how and why this has happened, with the economy shutting down, people are spending less and less, and so saving more and more.

That is, unless your job was affected by the shutdown, which means that (hopefully) you are getting some sort of government cash. 

So the theory is that with more cash and less ways to spend it, coupled with greater fear of uncertainty it means that people and businesses are stuffing that cash into savings for a rainy day. 

Yet, while this is a good thing in one respect because it means that people are able to take control of their fiscal destinies and build up a nest egg.

Yet, what happens when everyone starts to spend that cash all at once? What happens when we get a vaccine, and the number of Covid-19 cases start coming down?

Hopefully the spending will be measured and careful with people actually holding on to their savings. Or have already paid off their debts. 

What if people rush out and spend all that cash foolishly like a bunch of kids let loose in a candy store with two fistfuls of cash?

Hyperinflation, that’s what . . . that’s the real danger of all of that socked away cash.

What is Hyperinflation? Well, in a nutshell it is when prices rise drastically over a very short period of time (as in days or even hours) and they keep rising.

Why is that? Well, that is because the value of cash (as in the buying power) drops drastically due to all of that extra cash flowing around out there.

Think of toilet paper, hand sanitizer or face masks. A year ago they were easy to get, and nobody cared about them. In the early days of the pandemic, they were gold. Now, they are common place and even on special here and there.

Why? Their value has changed over that period of time. 

Cash is also subject to the laws of supply and demand and it isn’t really reflected in what it is worth in relation to the US dollar, but rather in what that dollar can buy you.

Think back twenty, fifty, a hundred years, the prices weren’t quaint because people were stupid, but because the buying power of the dollar was much, much greater.

I have no crystal ball, but that is yet another risk of the uncertain times that we are living in. I don’t want to freak anyone out, but rather just warn people.

Cash itself may be in trouble . . . or not . . . who knows, but things, other . . . stores of value will weather the storm of hyperinflation better.

Just food for thought, and as I keep saying, I am not an economist or other financial expert, just an average guy trying to make my way in the world.

As always: keep your head up, your attitude positive, and keep moving forward!

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