Why don't westerners understand the concept of currency risk ?

I have been having this heated argument with some fellows on a hockey forum about gold, inflation, investing, saving and all of that. What I have come to understand is that westerners are absolutely clueless on anything to do with currency risk. The reason is because generations of them have never experienced a currency crisis. Even the inflation in the 80's was blamed on Iranians taking Americans hostage and oil prices so they didn't learn anything from that. These guys have not been easy on me so I haven't  been easy on them. Its all part of the fun. Basically we have been arguing endlessly for 40 pages. Since none of them will save in gold, I asked them what they would do with $200,000 if it fell on their lap. I'm just posting this because I did some math that I always wanted to post.

My name is LolClarkson on this forum

Here is the exchanges:

Originally Posted by LolClarkson

I've asked this question 3 times now. Nobody has answered it. What would you do with $200,000 right now if it fell on your lap ????????????

Originally Posted by Epsilon

 

But it all seriousness, with $200,000 I'd pay off my debts, make down payments on a house and a new car, put a chunk in my checking account to make some purchases, and put the rest in a savings account.

I wouldn't spend a cent of it on a bar of gold bullion.

Originally Posted by Roughneck

I'd spend about $10,000 on stuff I don't really need.
A sizable chunk would go towards a home.
$10,000 to a trip
The rest into savings.

Originally Posted by LolClarkson

 Here is another fool who didn't understand the question. What would you do with it as an investment ? I am not interested in what you want to piss the money away on.

You said put it in savings.
 

Canada Inflation Rate
The inflation rate in Canada was recorded at 0.90 percent in November of 2013. Inflation Rate in Canada is reported by the Statistics Canada. Inflation Rate in Canada averaged 3.21 Percent from 1915 until 2013 but we will use the 0.90%

Toronto Dominion Bank Account Interest Rates

Rates as of January 01, 2014

Accounts $60,000 and over rate 0.35%

.90 (-).35 = minus -0.55. So after inflation, you have a negative .55 return.

So your $200,000 in a savings account costs you $1100 a year. (.55% of 200,000 is $1100)

After year one, you are left with ($200,000- $1100=)$198,900

Is this what you call a sound investment or savings strategy ?

Negative yields.... Plus you pay income taxes on the .35% return even though it is no return at all ! Using the governments own statistics.

Interest Income
Investments such as Canada Savings Bonds, GIC’s,
T-bills or strip bonds, pay interest income which
is taxed at your marginal tax rate without any
preferential tax treatment.

So the law says that you have to pretend that your $1100 dollar loss on your $200,000 savings doesn't exist. And you have to pay taxes on the imaginary return. Lets do some imagining...

.35% return on $200,000 = $699

Federal tax rates for 2013

15% on the first $43,561 of taxable income.

15% of $699= $104. So you lose $104 to taxes.

So you can add that to your already negative $1100 loss.

$1100+ $104 =$1204 loss.

$200,000-$1204= $198,796  

Originally Posted by Roughneck

LolClarkson: the guy who has all the gold in the world but isn't smart enough to use a TFSA (Tax Free Savings account)properly.

Originally Posted by LolClarkson

^This guy thinks that a Tax Free Savings Account will shield him from loss via inflation !

And we have already been through many currency risk lessons on this thread !