Thinkpiece

03 Sep Thinkpiece

In this update: 

• What causes inflation.

There is no subtly in money. Inflation is, everywhere and always, a monetary phenomenon.

It is not created by greedy corporations raising prices, nor by trade unions demanding higher wages, nor by supply chain disruptions in distant markets. These are merely the symptoms of the illness, not the virus itself. The true cause is far simpler and far more uncomfortable for those in power. Money printing, driven almost entirely by excessive government spending.

The government doesn’t have any money. 
The only power it has is to take from some and give to others.

Milton Friedman

When a government spends more than it collects in taxes, it faces a choice. It can borrow the difference, or it can effectively create new money to cover the deficit. When it chooses the latter, the central bank floods the system with newly minted currency. The physical supply of goods and services in the economy has not changed overnight, but the quantity of money chasing those goods has expanded rapidly.

So, what’s this got to do with financial planning? 

Well, the outcome is inevitable. When you double the supply of money without doubling the supply of bread, land, or labour, each individual unit of money buys less. That means that your funds don’t go as far as they did. What people experience as rising prices is actually the shrinking value of their currency. Inflation is a hidden, and an unlegislated tax; one that quietly erodes the purchasing power of your hard-earned money and savings without ever requiring a vote in Parliament.

When planning your financial future, understanding this reality is vital. You cannot control government spending, nor can you stop the expansion of the monetary base. But you can protect your wealth from being eroded by it.

True financial security requires holding assets that can grow faster than the rate of monetary expansion, rather than relying on paper currency that is constantly being diluted at the source.

Key Takeaways for Wealth Preservation

• Focus on Real Returns – Cash savings account interest rarely keeps pace with actual monetary expansion over long periods.
• Hold Productive Assets – Equities, real estate, and capital-producing investments adjust to price levels over time, preserving your real purchasing power. The will be blips. 
• Plan for Long-Term Purchasing Power – A successful financial plan must account for the steady decline in currency value, not just short-term market volatility.

Your opportunity

If you’ve not yet put in place a sound financial plan and you’d like to know more, please feel free to contact us on
01626 305318 or via email here.

The value of investments can go down as well as up. You may end up with less back than you have paid in. Past performance is no guarantee of future returns.

The views expressed are not to be taken as financial advice. Professional advice should be sought before proceeding.

This post is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations.

Information herein is believed to be reliable but Stover Financial Planners Ltd does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any regulatory duty that Stover Financial Planners Ltd has.