For Individuals

If you have savings…diversify your the savings across many different products. Once you know nation-state currencies such as the dollar and euro rise and fall in value, you’ll know that a savings account of dollars rises or falls in value (mostly falls), and that other investments may provide a better store of value. You can’t buy a loaf of bread with a barrel of oil, but you can store your wealth in oil and other commodities, and when you need to purchase an item, you can convert some of your commodities into your local currency and then use the currency to buy items you will use or consume.

Let’s say you have $10,000 and you spend about $1,000 per month. You can move the other $9,000 into gold, silver, other commodities and collectibles. When you need to buy something beyond your usual $1,000 spending, convert part of the commodities and collectibles back into dollars. Please note, there will be fees when buying and selling the commodities, and taxes. If the dollar declined dramatically, then the fees and taxes should be less than the amount of purchasing power you would have lost had you owned dollars during that time.

In a free banking system, you conceivably could use oil to buy a loaf of bread. Your bank might be an oil company that works with financial intermediaries who would handle the conversion of oil into a local currency such as dollars. This free banking system would not have taxes on investments or trade so when you trade oil for bread, the government does not apply two sales taxes: once to the oil and once to the bread.

If you have a job…tie your salary to a basket of goods rather than a national currency. The dollar is as good a standard of value as Enron stock or really any other stock. You wouldn’t tie your salary to one stock, such as IBM stock, because the value of IBM stock could plummet at anytime. Your paycheck might be 100 shares of IBM stock each week, but the value would change each week and could plummet. The value of the dollar can plummet at any time as well, or be intentionally “devalued” by the U.S. government.

You can instead tie your pay to the value of a basket or collection of goods so you are not dependent on the value of one good or nation-state currency. For a job assignment, could negotiate a pay of $3,000 per month and at that time calculate the how many baskets $3,000 can purchase. For example, as of mid-2010, the value of oil is $75 and the value of gold is $1200. Monthly pay of $3,000 is worth two ounces of gold and eight barrels of oil, which could be your basket.

When you are pad the next month, you would check the value of oil or gold, and then calculate how many dollars you should be paid.If the gold price rises to $1300, then since your basket contains two ounces of gold, you will receive a check for $200 more than usual, or $3,200 of gold. You did not earn more purchasing power, you simply maintained your purchasing power. With your paycheck you can still only buy the same amount of goods as before: two ounces of gold and eight barrels of oil. You may have $200 more dollars, but as we mentioned, more dollars, just like more Enron stock, does not necessarily mean more wealth. Tie your pay to basket of goods to ensure you can always buy that basket of goods, regardless of what is happening to the value of the dollar.

Using Money Products with a Monthly Credit Card

The less exposure you have to a currency losing value, the less wealth you lose. If, over the course of a month, you charge purchases to a credit card, you can keep most of your wealth in another form of money during the month, and just before you need to pay your monthly credit card bill, you convert your wealth into the local currency. You would only be exposed to inflation for a couple of days.

Note that you would pay transaction costs, such as $8 a trade, and capital gains taxes. You must calculate if these costs are less than the amount you might have lost had you owned the central bank currency.