In a recent USA Today article entitled “Cash is King for ex-CEO of Pimco,” we are told that the former CEO of PIMCO, Mohammed El-Erian, is “keeping most of his money…in an unusual place – cash.” El-Erian explains, “That’s not great, given that it gets eaten up by inflation. But I think most asset prices have been pushed by central banks to very elevated levels.”
So one question immediately comes to mind (actually many questions, but let’s keep this post short!): If “cash is king” what makes it “unusual” to hold one’s wealth in that form and why is it dangerous to do so? Of course, we are spoon-fed the answer: INFLATION. If your money is in cash, it can’t grow at a rate to keep pace with inflation. And if your money is in cash, then its purchasing power gets decimated by inflation. Simple, right?
Or is it? This is the classic case of giving an answer while adroitly avoiding THE ANSWER. It’s like the answer that the teen-aged son gave to his father after wrecking the car the previous evening. Dad asks, “What happened to the car?” Son replies, “It’s dented!” It’s true as far as it goes, but it doesn’t go far enough.
I have attempted previously to demystify the concept of inflation and the negative consequences of this dishonest money system, so I will not re-hash those ideas here. What I will say now is that if the former head of the largest bond firm in the world believes that it is not only reasonable, but wise, to hold “most” of your money in cash at certain terms, then perhaps we should heed that advice.
Still, we must understand the dynamics of this operation and act accordingly. There are different ways of “holding cash” and different means of using it to offset the very real danger of inflation. In short, if you were to keep your money in the bank at .001 percent interest or bury it in the back yard, you will indeed have your wealth “eaten up by inflation.”
No, there are two solutions to this quandary, one immediate and one long-term, which must be kept in mind. The immediate solution is that you must maintain your “cash” in a place where that wealth is put to work for you and which can offer returns that keep up with or out-pace inflation. The long-term goal must be to get rid of central banks and fractional reserve banking which enable the theft by inflation in the first place.
These are tall orders to be sure. But not doing anything will only enable the royal rip-off of your hard-earned dollars that goes on daily.