Friday, February 17, 2012

Money is a depreciating asset

Money no longer holds a constant value in this day and age. The sooner one realizes it, the better able he is to prepare for his impoverishment.

Money actually depreciates at the rate goods, services, and taxation go up in price. Let's say you have a certain amount of savings in the bank, earning an interest of 6% per year. Assuming you do not touch the interest at all, letting the principal grow cumulatively. At the same time, cost of living goes up by 10% (for utilities, transport, house, food, council rate, etc). Your net wealth is actually poised to drop by 4% at the end of the year.

In an ideal capitalist society, the system is supposed to be self-correcting such that the price of goods and services will always remain in check. Well, the system has cracked. Price stability is no longer the norm. Constant price increases is the new norm as corporations set ever-higher prices with no restraint. Politicians join in the game to increase taxes everywhere under whatever guises they can think of (e.g. carbon tax).

Unless the government acts to curtail price increases that do not reflect actual costs (such as banking industry practices in Australia), the government is actually letting the economy run wild. Unchecked, the average taxpayer will soon see his take home pay disappear before he can take it home.

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