In the world of trends history repeats more than it rhymes. Things that were considered “in” decades ago, can reemerge as cool decades later — from mom jeans to vinyl records and even Marxist ideology, the spotlight turns to things good, bad and nearly forgotten.

Inflation is the latest trend to reemerge.

Not Your Father's Inflation
But this isn’t the kind and considerate inflation that hummed quietly in the background for years. This is the face-ripping, headline-making inflation dominating the news cycle and causing many to ask: why are things are so much more expensive today than they were a year ago?

Because our “money” isn’t money.

While increased CPI numbers continue to make headlines (the most recent numbers come to 8.3% annually), the common refrain from central bankers has been that there’s no need to panic. This has all been calculated and anticipated by the Federal Reserve’s economists.

Just like GDP is a terrible measure of economic health, CPI is a terrible measure of inflation. Not only has the basket of goods used to make the calculation changed numerous times but the approach to the problem is not even wrong as we like to say.

Price increases will impact different people in different ways. Regardless, we can be certain of one thing, the broken IOU of the Federal Government, which we mistakenly call “money” today and the system built around it does not help. In fact, it’s designed to hurt.

You’re supposed to lose value each year holding dollars! It’s a feature, not a bug. While the stated minimum might be 2% by their own mandate, there’s no limit to how high it can go.

The Challenges Investors Face
When the stated minimum loss on your dollar is 2% and when it overshoots to 7.5%, how is one to make an investing strategy upon which to retire one day?

Since no Certificate of Deposit (CD) will truly outpace inflation many have turned to the stock market, i.e. TINA – There Is No Alternative. Certainly, you could shoot for a portfolio that earns 4% each year but this is not as easy as it sounds. The stock market is overvalued by many different metrics. And as we say, rising asset prices is not a substitute for earning a yield (despite what just about everyone else will tell you).

There are no signs that the Fed is willing to undo the damage it has already done. The total debt burden continues to grow. If the past is any indication of the future, one can only conclude that there will be more debt ahead. The growing debt puts downward pressure on yields (bond yields are the inverse of bond prices), adds default contagion risk, and ultimately increases the risk of owning dollars because you’re the creditor.

Those are just a few of the known risks to consider. Then there’s the “unknown unknowns,” the black swan-type events like COVID which cannot be predicted and are extraordinarily difficult to hedge against. Generating a suitable return in this market that beats inflation is no easy task, therefore it’s time to retire TINA (the acronym for the idea that There is No Alternative to stocks) and put GITA (Gold Interest is The Alternative) in charge.

Maybe it’s not the catchiest of acronyms but earning interest on gold is an alternative worth considering. Gold and silver have solid track records of standing up to the dollar’s shortcomings. Since 1970 gold has returned around 8% per year, measured in dollars. Earning interest on gold means your ounces grow no matter what the price of the shiny metal. A steadily increasing quantity of gold and silver and a history of rising prices can be a strong combination.
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Erik Oswald is a relationship manager at Monetary Metals & Co. (www.monetary-metals.com).