Inflation
In Argentina, the cost of food is about 50% higher than it was this time last year…
In Zimbabwe and Sudan, the prices of everyday goods are doubling (or more) every year…
And in Venezuela, according to Johns Hopkins professor Steve Hanke, the annual inflation rate is nearly 65,000%.
Rapid inflation – or hyperinflation, in Venezuela’s case – is a telltale sign of a currency crisis. And government incompetence is the root cause.
Modern currencies are “fiat” – they aren’t backed by anything. The value of a fiat currency is dependent upon the government, which effectively controls the amount of money in circulation – either physical or electronic.
If policymakers spend recklessly, take on too much debt, or otherwise compromise the faith in the currency, then its perceived value declines. The result is higher prices for goods and services. In extreme situations, like Venezuela, the currency swiftly becomes worthless.
Whether it occurs quickly or slowly, inflation is unavoidable. Even the U.S. dollar has lost 93% of its purchasing power over the past century. Let’s say someone purchased $10 worth of food and clothing in 1918. Those same items would cost you about $170 today.
The point is, currencies – even the U.S. dollar, the reserve currency of the world – don’t hold their value well over the long term. Therefore, putting cash under your mattress and leaving it there for a long time isn’t a good idea.”
