Don’t Let your Dollars Wilt Away

Amid the global financial turmoil it seems that the only safe haven are fixed term deposits... that is until we recover our cash and try to use it ...

Monday, July 9, 2012

What matters is not how many dollars you have in your bank account, but what products and services can be purchased with them.

In an article in Prensa.com, Joey Levy discusses the illusion of security of fixed term savings, citing an $10,000 investment giving 6% from 2002 to the present. In current terms, the money will have grown by 80% to $17,908, but in terms of purchasing power, it may have incurred a loss.

"10 years ago on the international market oil traded at $32 per barrel, a pound of sugar at $5.86 and a bushel of corn at $243. This means that in 2002, with $10,000 you could buy 313 barrels of oil, 1,706 pounds of sugar and 41 bushels of corn.

Today, however, with $17,908 you can only buy 205 barrels of oil, 816 pounds of sugar and 23 bushels of corn", which translates into a loss of 34% on oil, 52% compared to sugar and 43% in relation to corn.

While the Federal Reserve of the United States continues inflating, with no real backing, its currency, dollars invested in fixed term deposits will continue to lose value.

In order to maintain purchasing power, Levy recommends diversifying into other currencies and investments that can benefit from the devaluation of the dollar, such as metals and "real" assets such as productive land and natural resources.

More on this topic

Costa Rica: Electronic Savings Pay Less

August 2011

The central bank has lowered the interest rates it pays on electronic savings deposits on the "Central Directo" system.

The monetary authority decided to cut rates in order to better align itself with the rates being offered on the market in recent months, which have been relatively low and stable.

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