The Genie Out of the Bottle

Abstract

Just as one can practice safe sex, there used to be a way to do safe finance by holding safe assets. In its most general sense, an asset is anything that allows one to obtain goods and services in the future. In normal times, cash—actual dollar bills and coins—is the safest of all assets: you put it under your mattress and retrieve it when you need to buy something. The problem is that you don’t get any interest or other return on cash hoardings. It is better to put your money in the bank and earn some interest. Cash in the bank is pretty safe, especially since the federal government’s deposit insurance scheme protects you against bank failures. In times of inf lation, of course, cash ceases to be safe, for its value diminishes as the prices of goods and services rise, but this problem can be ignored in normal times.