Beating The Devaluation of the Dollar

My Neighbor’s Plan To Beat The Rising Prices of Big-Ticket Items went like this:

Neighbor said that he believed inflation was going to increase substantially in the near future.  This, he thought, was because of the ongoing political banter between Beijing and Washington D.C., and that the Chinese negotiators are clearly smarter than the American politicians.  He said the Yuan is taking over the advantageous place in international trade that the dollar has enjoyed until now.  Serious devaluation of the Dollar is inevitable, according to his calculations. 
Be that as it may, whatever it is; “it is what it is”, as the saying goes.
His master plan, at any rate, was to beat the imminent devaluation of the dollar by stabilizing his major expenses.  He was going to buy his dream car with today’s dollars, thereby having a specific payment of specific dollars, then repay that specific amount with tomorrow’s dollars which would be worth much less.  Therefore, his “dream car” tomorrow would cost perhaps  25%   more than today, but his purchase price and contract would be at today’s prices.  Same with a summer cabin he could buy today, saving the increase that would be added tomorrow with the devalued Dollar, according to the realtor giving him all this good advice.  He had a few other clever ideas, but these two were the major part of his grand plan.
Sounded like he had it all figured out.  Except for a couple of problems he may have overlooked while developing his grand plan to beat the future.
I asked him what the payments would be on the car, and what the principal owed would be.  The purchase price (“principal”) was just over $50,000.00 and monthly payments would depend on the length of contract.
I asked what the cost of the vacation cabin would be.  He had been looking at both property and cabins.  Property was about $150,000.00 and property with a nice cabin might be $350,000.00.
A total obligation, and payments with interest, of a half-million dollars.  Give or take.
I just looked at him without comment.
He eventually asked:  “Whaaat?”
“Do you really need a new dream car?”
“Uhhh, not really, but I’d be beating the coming dollar devaluation.”
“Does your family want to spend vacation the same place every year?
“Uhhh, well, maybe it would get old, but it would be an investment…”
“So you plan on spending fifty thousand for a car that will be worth ten grand less, as soon as you drive it off the dealer’s lot?  That’s a twenty-percent loss in ten minutes, so where are you beating the dollar devaluation?”
“Well, the payments would be stabilized at today’s rate, not tomorrows higher rate, and I’d be paying with tomorrow’s less valuable Dollars.”
“Stabilized on a car you don’t need, which is loosing value every mile, right?
“……. Well, Riiiiiiight…”
“Stabilized on a vacation cabin that will become monotonous to stay at?”
“……. Uhhh, maybe, but it’s an investment to beat the dollar devaluation.”
“OK, so you’re obligated for a half-million dollars, plus interest.  The car has lost ten thousand the first mile, which is 20% of your car investment.  The coming dollar devaluation you expect will tighten up the vacation property market.  Because, simply, the other side of currency devaluation is inflation.  Living expenses increase; disposable income decreases.  That means everything your family needs today will cost 25%  more tomorrow.  If the increases in your income do not keep pace with inflation you’re going to have a net decrease in your purchasing ability.  In other words, your income has to increase 25% just to maintain today’s comfort level.”
“OK, well, maybe that idea was a little optimistic.  So what would you do?”
  “Follow the advice of the wise man.  That way no matter what happens you’ll be in the best possible position you can achieve to provide for your family during good as well as bad times.”
He thought about that for a minute.
“So, what does the wise man say?”
“First the wise man says to avoid debt like the plague.  That means you buy what you need, not what trips your ego trigger.  Second he says to gradually build up the resources your family uses to sustain themselves.  Food, water, clothing, non-food items essential to running your house and property, transportation.  Idealy, try to save sufficient funds to see your family through a period of difficulty.  Difficulty may be caused by serious inflation, disruption of the supply system, or a loss of  employment income.  If you want an investment pick something that will be in demand and in a market niche that can afford it.”
“I don’t know; that sounds like an expensive project…”
“OK, but what was the down-payment, out-of-pocket cash, you were going to invest with that uber-super car and the vacation resort?”
“Well, maybe twenty-five thousand or so.  The car was no down except my trade-in, the cabin was ten percent…”
“So, why not put twentytwo thousand into insured savings at the bank or credit union, and three thousand into all the other supplies, and you’d be right up there with what the wise man recommended?”
“Yeah.  May be the way to go.  And my wife would be a lot happier too.  She wasn’t too supportive about the car and cabin.”
“So, there you go; one fell swoop and you make your wife happy, do everything the wise man suggests, and sleep better because you don’t have a fifty-grand investment that is loosing money every day.  Plus, you don’t have a white-elephant over-priced property that you’re trying to sell in a depressed market so you can buy food for your family.”
“Good plan, I should have thought of that a long time ago.”
“Good decision!”


About kglawton

I'll never die because I have so many things to be completed.
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