Americans historically have been terrible at saving.
The COVID-19 crisis changed that.
Indeed, the COVID-19 crisis has changed our lives in so many ways, including how much we save.
Back in 2013, the American personal savings rate stood at a paltry 3%. That compares to Germany (10%), Australia (11%) and France (15%), according to Organization for Economic Cooperation and Development (OECD) data.
Americans who are still employed in 2020 are saving more during the COVID-19 crisis – than ever before in history.
Most experts would argue – a higher savings rate is a good thing. In fact, we agree. Yet, your future financial security depends on where you put that savings (more on that later).
In April at the height of the COVID shelter-in-place lockdowns, American’s savings rate surged to over 30%, according to the St. Louis Federal Reserve. It’s come down since then – but still stood at a respectable 14% as of August.
In fact, total household net worth rose 6.8%, to $119 trillion in the second quarter of 2020, the Federal Reserve said. That gain was the largest in quarterly records back to 1952.
What to Do With Your Savings?
Investors looking for a safe place to store their savings today see meager choices in vehicles that our parents and grandparents used – like certificate of deposits, bank savings accounts or even Treasury securities.
- Current CD rates stand at 0.27% for a year.
- The average bank savings account interest rate stands at 0.05%.
- And, 3-month Treasury bill yields only 0.09%.
When you factor in inflation – you lose money every month you store your money in one of those assets.
|Current Rate||Inflation||Real Rate of Return|
|3 Month Treasury Bill||0.09%||4%||-3.91%|
What Happens If the Dollar Crashes?
To make matters even worse for investors today, the COVID-related explosion in the U.S. government debt leaves Americans so vulnerable to a dollar-crisis.
If the dollar crashes, you lose. It’s really that simple.
This is not something many people think about.
The value of the U.S. dollar – measured as the U.S. dollar index on the global financial markets matters a lot – to your future purchasing power.
Sadly, the Federal Reserve and our government continue to obliterate the future value of our dollars, with every new dollar they print and every new dollar they rack up in government debt.
- In 2016, the total U.S. government debt stood at $5 trillion, according to Treasury Direct.
What is the national debt today?
- We just surpassed $27 trillion in October 2020, four years later.
If the dollar index falls you lose. Then what?
Of course, we all know the U.S. government no longer backs its dollars with gold. Yet, the government has printed more dollars by the trillions – just this year alone!
What does that do to the value of the piece of paper in your pocket? As we learned in Econ 101, more of anything dilutes the value.
Can you trust the value of the U.S. dollar to stay the same?
Today the U.S. dollar is increasingly vulnerable to a major crash due to central bank money printing and massive government debt.
Stephen Roach, Yale University Senior Fellow and former Morgan Stanley Asia chairman, told CNBC this summer that a dollar crash is looming.
“The dollar is going to fall very, very sharply. These problems are going from bad to worse as we blow out the fiscal deficit in the years ahead,” said Roach.
His forecast calls for a 35% drop against other major currencies within the next few years!
What will that do to the real rate of return on CDs, savings and treasury bills? You can bet it will be worse than the -3% to -4% you’re getting now.
Want a safe, liquid asset that keeps your purchasing power intact?
Gold Preserves Your Purchasing Power
It’s no wonder that investors in the U.S. are turning to gold in 2020. Major investment firms have even called gold a “bond alternative” this year.
When you are investing for the long term you want to increase your wealth and preserve your purchasing power. Gold does that for you.
Legendary investor Warren Buffett highlighted this critical point in his 2014 letter to Berkshire Hathaway shareholders. Buffett explained how over the past 50 years, the purchasing power of the U.S. dollar fell 87%. That means it now takes $1 to buy something that could be purchased for 13 cents in 1965, as measured by the Consumer Price Index. That’s simply from inflation!
A dollar simply doesn’t buy what it did 20 years ago and will buy even less 20 years in the future – especially as the government enacts policies that weaken our currency.
You need your investments to hedge against currency volatility and to keep up with the pace (or exceed) the rate of inflation in order to preserve your purchasing power.
Gold and the dollar have what is known as an ‘inverse correlation.’
Gold is a traditional hedge against inflation and tends to increase often significantly during inflationary periods. And also – this is important – when the dollar goes down, gold goes up.
Turn to the safety of gold
In today’s uncertain world, where you put your savings is more important than ever.
Don’t let your hard earned savings crash in value – as government policies leave the U.S. dollar at risk.
When you invest your savings into tangible assets like gold and silver you can be assured your future purchasing power will be preserved. Just as it has been for thousands of years, gold is a store of wealth, an asset without credit risk related to any government. Gold is an alternative currency and some may say the only real currency. You can take that to the vault.
Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.