“Your cash is melting like ice in the sun.”Or so say some financial advisors when referring to the current level of inflation.Inflation is a constant tax, of course, making your money worth less and less as time goes on.
When inflation starts to get out of control, problems abound.What’s a retiree to do, withdrawal-wise, in an era of high inflation? How have similar conditions worked out in the past?Let’s take a look.
As I started my research for this article, my original idea was to comb through the stock market data going all the way back to 1900 and identify the periods where inflation was the highest. As I started playing around with the data, though, I realized that the story of inflation (and the techniques used to fight it) has evolved over the last century.
At the beginning of the 20th century, politicians and economists really didn’t know what to do with inflation, and as a result made some decisions that, while they seemed like they made sense at the time, actually made the problem worse.
Inflation, in the best of times, is a confusing topic to grasp for any economist, but in the early 20th century the people running things were really just trying random things to see what worked and what didn’t, with varying degrees of success.
You’ve probably heard your parents or grandparents wax nostalgic about the gold standard because it supposedly made money “more real,” but I’m honestly not sure why it was so great. In a nutshell, the gold standard made each dollar exchangeable for physical gold at a fixed price.
The point of this was to limit the number of dollars in circulation since the money supply was limited to how much gold the US had in its possession. This would theoretically prevent inflation from ever happening, but the gold standard failed miserably in this regard as inflation managed to rear its ugly head anyway in 1941, 1946, and 1950.