One of the people that I worked with at the Air Force said this to me after I was trying to strike up a conversation about economics with him. I was talking about inflation and how the current actions of the Fed were likely to devalue the dollar (which has already happened since this conversation took place), and he replied to me, "Oh, I don't do investing." Initially, I thought, "Okay, whatever;" but on further thought, this struck me as odd.
If you work, you are most likely paid in some form of US dollars, either a check, or paper money, or just imaginary digits in a computer, but you are paid in US dollars. US dollars are effectively a worthless commodity that is assigned value only by the market (see my previous post).
So, for anyone who says that, "I am not an investor," you actually are an investor, by definition, and you are 100% diversified into US dollars. Not a very safe position to be in, if you ask me. Although, by your chosen ignorance, you are effectively boosting up the perceived value of the dollar by being unwittingly willing to exclusively hold dollars, but you are only one of many also. If everyone (granted, EVERYONE will not decide this simultaneously, thank goodness) else decides that the dollar is no longer a safe place to store value, then you will be screwed along with everyone else who chooses to hold dollars.
So, I suppose the moral of today's post is this: you are an investor, whether you want to be or not. I suggest you either get smart about it, or find someone you trust to get smart for you. I, for one, would not trust Goldman Sachs...
This is of course assuming only investment comes in the form of holding/trading foreign currency or commodities. And ForEx trading, while a plausible investment strategy, could not really be implemented as a way to receive income from your job.... Unless you own a multi-national enterprise in which case your income would come from the countries you sell in, but chances are you will convert this money to your home's national currency anyways. I can see how that conversation would go, "Boss I don't wanna get paid in dollars anymore, I would prefer receiving pounds sterling instead!"
ReplyDeleteI wouldn't say everyone is an investor, I would just say that everyone is stuck in their national currency because things you need right now are not priced in anything other than dollars.
Funny side note: I actually had a job application ask me what currency I wanted to be paid in. I was tempted to put Australian dollars!
ReplyDeleteI think I will disagree with you that ForEx trading cannot be used to make money. As long as we live under a floating point exchange monetary system, people can trade currencies just as easily as stocks. You make money on the fluctuations in the currency exchange rates. That is why you see such enormous changes in the currency exchange rates these days is because people with lots of money are speculating on currency rates, and computers allow them to do in nearly instantaneously.
I didn't say that ForEx cannot be used to make money. I said it "is a plausible trading strategy." The ForEx market trading per pay is 6 trillion and arbitrage traders take every advantage of the slightest shift in the value of currencies to make money. And you are absolutely correct about the computer exchange... they are instantly arbitrage trading!
ReplyDeleteMy bad, plausibility in my book implies making money. :-p
ReplyDeleteI still think this instant trading of floating rate currencies is absolutely destabilizing the global economy.