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You Can’t Count on Your Cash

NewsmaxFinance  |  Trevor Gerszt

Saving for retirement is increasingly difficult in today’s uncertain economic climate.

Image result for worthless cash images

Unfortunately, as we’re now witnessing in India and Venezuela, things can get a lot worse. As massive cracks appear in their economies, what’s revealed are the critical weaknesses of a nation’s cash.

India Voids Their Own Currency

As the Wall Street Journal noted last month, India has decided to print new, more secure versions of their 500 and 1,000 rupee notes. The goal was to thwart counterfeiters and tax evaders, as well as to persuade 1.2 billion Indians to put their cash into the banking system rather than storing it at home.

However, Prime Minister Narenda Modi announced in early November that the country would stop accepting the current notes as legal tender—effective immediately. The new bills weren’t ready. It was as if our government abruptly declared all our $20 and $100 dollar bills trash.

Suddenly 90% of India’s paper currency was valueless. The Journal reports Modi gave Indians until the end of the year to deposit their bills in a bank, so as not to lose their value. New notes are in production, but at the moment less than $60 billion of the $230 billion needed has gone into circulation.

Reaction has been swift and severe: the rupee plummeted in value practically overnight. It has recovered somewhat, but not nearly enough, and it will take some time before India’s currency gets back to where it was, if it ever does.

Venezuelan Retailers Weighing Cash

India is hardly the only country dealing with cash problems. Venezuela’s bolivar is currently so devalued that many vendors are now weighing cash payments rather than counting them.

Until recently the country’s largest denomination of currency was the 100 bolivar note, currently valued at less than 10 U.S. cents. Venezuelans bring backpacks and duffle bags full of bills with them to do their shopping. Credit and debit cards help to some degree, but many workers are still paid in cash, causing significant problems both for them, and the vendors they patronize.

After ignoring the problem for months, the Venezuelan government finally agreed to print larger bills this month, in denominations of 500 and 5,000. Additional bills valued up to 20,000 bolivars will be rolled out in the coming year. However, while this solves the problem of weighing backpacks of cash, the country’s currency is still largely valueless.

The Dollar Bubble

Both India and Venezuela are major world economies, and their currency was devalued essentially overnight. Of course their currencies aren’t ours. In fact, as the rupee and bolivar weaken, the U.S. dollar gets stronger by comparison. Add to that the trouble the pound and euro are experiencing due to Brexit fears, and American currency might seem like a solid investment.

Yet this perceived strength may in fact turn the dollar into a bubble. As more investors flock to what they see as a safe haven against more volatile markets, the dollar’s value will continue to rise.

Unfortunately, when the dollar bubble finally bursts, its worth will fall quickly. While it’s doubtful we’ll ever see a currency disaster quite on that scale of Venezuela or India, it’s important to bear in mind that the value of your cash can drop drastically overnight.

This is what long term investors need to remember as they build up their nest eggs. Some Americans, out of fear of the markets, are putting the bulk of their retirement savings into physical cash. However this is incredibly dangerous, even in a stable economy.

Inflation inevitably causes cash to lose purchasing power over time. Thus, a $20 bill today buys less than half what it did 30 years ago. In a major currency disaster its value could fall much farther than that. So what will happen to the buying power of your cash savings 30 years from now?

It’s a question that plagues Americans over 40, for whom retirement is an impending reality. If you retire at 65, you could be looking at three decades of expenses, including medications, healthcare and supportive care, that will only increase as your nest egg is whittled away by inflation.

Finding the most reliable vehicle for your savings, one that will retain its value, has become critical. As a currency, gold, particularly physical gold held in a Gold IRA, has historically been shown to resist both inflation and market downturns, thus preserving buying power. It’s really the only way regular Americans can safeguard their retirements against major economic disasters—and reckless government policies that may otherwise wipe us out.


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