In our new audio seminar, Positioning Your Assets for Growth in Uncertain Times, among the many issues we address are one of the risks of holding your savings in a currency that is falling in value relative to other currencies and real things.

As an example, we show the cash flows of a 5% five-year corporate bond from 2003 to 2008. When the investor gets principal back in 2008, the dollar investment has dropped 50% in purchasing power when measured in the price of gallons of gas.

Now, let’s scale that up for an entire household. Let’s say we have a mother and a father, two children and an elderly grandmother living in the San Francisco Bay area. They have three checking accounts, with total balances of $5,250. The grandmother has two CDs at a local bank for an additional bank balance of $100,000 and the older child has a savings account of $75 from what she saved cutting yards during the summer and babysitting during the school year.

The couple has a 401k and an IRA. Among the assets held in these accounts are dollar- denominated money markets with another $20,175 as well as several dollar-denominated bond funds worth $70,000. They also share a brokerage account that has $30,000 in California municipal bonds and $23,000 in another money market account.

If you look at their collective wallets and the coin jar they have in the living room, they have another $500 in cash within the household. They also have reserves in some of their financing and vendor relations, including a $200 deposit with their utility company and an $800 balance on average in their mortgage reserve for taxes and insurance.

For simplicity’s sake, let’s say they have maintained these average balances from the beginning in 2003 to the beginning of 2008. That is, they have had $250,000 in dollar- denominated assets during this period that produce no or a modest income.

How much have they lost in purchasing power when we use gas as our currency instead of dollars?

They have lost approximately $250,000 of purchasing power in current dollar terms – a quarter of a million dollars!

That’s right. Whatever your average balances held in dollars are over the last five years, that is approximately how much you have lost in real purchasing power when we measure it in gallons of gas priced as of the beginning of the year. Of course, things are worse since then.

Does that help you understand why you are feeling drained?

This type of drain is part of a phenomenon we call the Slow Burn. We want to help you understand the Slow Burn and reverse the drain that a falling dollar is causing in your life. Remember – it is never too late to act!

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22 Comments

  1. 11-3-2008

    MY VERY NAÏVE SOLUTIONS TO U.S. PROBLEMS

    NATIONAL HEATHCARE
    1. Consolidate VA, Army, Navy, Air Force Hospitals into one system under one management. Spare availability can be used to absorb public wards.

    2. Government to form a managed Health-Net as follows:
    A. The total cost of all cardiac, arterial, stroke, hypertension diseases to be added up at the end of the calendar year and placed as a tax on all milk, cheese, and meat meat-products.
    B. Cost of all pulmonary, peripheral vascular, and renal disease to be added up annually and divided into all the tobacco and marijuana sales.
    C. Cost of all liver diseases, spleen, intestinal, orthopedic diseases are to be divided and taxed on liquor and cocaine sales.
    D. All sugar related diseases are to be added to the corn syrup, sugar, and confectionary sales taxes.
    E. Psychiatric diseases are to be taxed on Methamphetamine, Heroin, Morphine, and sales of all legal and illegal Psychotropic drugs.
    F. Traumatic injuries, be they auto, motorcycle, or work related need to be added up annually and divided into each registered vehicle. In this way every motorist is automatically covered.

    As an inner city (Harlem) trauma surgeon, the cost to taxpayers shouldering the burden for drug related crime is huge and absurd. ALL Drugs, illicit and legal need to be legally produced in the US and not imported from Columbia et al, in order to stop the outflow of dollars. The drug trade deficit is never included in the monthly trade statistics.

    The government needs to add the costs, add an additional 5% for management and next years cost increases, and manage the health care system. The reason to delete private enterprise: why should a CEO take a $15 MM salary, and fly a corporate jet…taking money away from the patients that need those dollars. Health care morally should be a NON PROFIT COLLECTIVE UNDERTAKING. Those people wishing to consume harmful substances, cholesterol, etc, will pay for the priveledge.

    GOVERNMENT:
    1. We need to shrink the cost of the US Government and make it more transparent. We should require every resident between the age of 18-20 to work for the government for modest wages, and room and board. We will have, in effect, a volunteer government. Younger folks being more idealistic would be less likely to take bribes. Volunteers that like government may stay an additional 3 years. These are “special employees.” Only these “special employees” are allowed to make procurements on behalf of gov.

    2. Special Interest Groups and Parties must be abolished. Lobbying and political contributions should be made illegal. Senators and Congressmen may serve only ONE SIX YEAR TERM in aggregate. President has line item veto power on any bill.

    3. Criminality and Prisons: Prison should only be for violent crimes. US Government must provide, maintain, manage all prisons. Economic crimes must be paid back in multiples of the amounts or in government service. Every attempt to keep families together, and not imprison anyone without truly just cause. Productive members of society should not be imprisoned if they can be of benefit to society.

    EDUCATION
    1. Every child should have 1-2 hours of physical education and activity daily. Every child should have a choice of language, (other then their native), and must play one instrument, have basic math, reading, and writing skills. Math through Calculus, and 10,000 word vocabulary are mandatory. Schools should be from 8:00 to 5:PM with breakfast, lunch, and afternoon snack.

    2. Retired and persons living in old folks homes, nursing homes, if able should volunteer their time (be bused if need be) at school, especially to the younger classes. Old people sitting in nursing homes are a waste of a good life experience, and have many life skills that can be put to use gladly, and without cost as volunteers, highly respected by the community.

    3. Math and science skills are essential for our future. These need to start early and every kid should be proficient with basic computational math in their heads.

    4. Foreign students need to pay dearly to get into US schools. Why are we training our competitors. At UCLA in the sciences 70% of students are Asians. They have superior math and study habits, so they are preferred by the admission committees. School in China in 6 days a week and 7-5 M-F and 8-1 Saturday. How are U.S. kids going to compete. If the poorer Chinese and India can provide this kind of disciplined education to their youth we can too.

    ENERGY=TECHNOLOGY
    $1,000 BLN spent on Iraq may have solved the fusion problem, and sent up a lot of space development. Why is CERN and the LHC built in Europe and not the USA. WE NEED BASES ON THE MOON and every dollar spent on space and technology has paid handsome dividends in microelectronics, healthcare, optics, and engineering, endless creative benefits.

    Fuel: Gasoline has to be priced at $10.00+/gallon. We need smaller cars. We need alcohol plants, and high import taxes on foreign oil. We need multi fuel cars. We need biodiesel and more local wood and waste fired power plants.

    OKAY, I am done.

  3. I didn’t know Catherine was on C2C again. I will have to join again to get the interview. It was C2C that orginally introduced me to Catherine & Solari. I have to ditto what Trish said. I can feel an excitement building up now and I was always inspired when I hear Catherine. Those of us who have been financially illiterate surely can grasp the understanding we need because of your “intimate” presentations that almost anyone can grasp. We can’t say thank too many times! Sending you lots of energy and good thoughts!

  4. Gee, I was really getting caught up in your writing thinking I was reading an academic treatise.
    Then the “to order” phrase. Same-o, Same-o. Goodbye!

  5. I have listened to you on Flashpoints for years. I’m now 80% gold, 10% silver and 10% oil stocks for two years now. I couldn’t be happier. Thanks for your great wisdom.

  7. catherine;
    i heard you on coast to coast the other night. your understanding of the economic problems reflect my own thoughts. you gave me some new perspectives.
    thanks again.

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