Check Your Premises

Check your premises is a sub-theme in the Ayn Rand book: Atlas Shrugged.

It means that if you are dealing with a contradiction, then one of your beliefs may be false.

This is also known as checking your assumptions.

Today there are many contradictions in the financial, economic and political world.

Some of these contradictions, if not understood can negatively affect your financial future.

Recognizing and confronting these contradictions and then resolving them (in your own mind) is key to making wise financial decisions. Here are some examples to check your premises

Low Future Inflation Premise
Many financial planners use a 2.5 – 3% per year inflation rate when determining the bite inflation will take out of your income over a 30 year retirement.

High inflation Contradiction
Although the 2.5-2% inflation rate is relatively accurate from 1982 until 2011 it is not the norm.

Much higher inflation has occurred a number of times in the US in the past century—eroding the dollar significantly.

For example; from 1970 to 1982 inflation eroded the dollar about 62%. See Inflation and Stagflation for more information.

The Gold Bubble Premise
The argument for gold being is an economic bubble is that the price of gold has been rising for 11 years. Consequently, it is in a bubble.

Gold is undervalued Contradiction
The price of gold in comparison to the number of dollars circulating in the economy is low. The reasoning is as follows:

If we had a commodity backed system today (using gold as that commodity) then each dollar would be backed by a certain amount of gold. To determine that amount of gold we would need to back the US Currency do the following:

Divide the amount of all of the gold held in the US into the M1 money supply. As on December of 2011 M1 is 2.17 trillion dollars. There are 287 million ounces of gold. Dividing the amount of gold into the M1 money supply gives us: $7,571/oz of Gold.

Consequently, the current price of gold is not in a bubble, it is undervalued.

Gold is a barbaric relic
Gold is only an investment for the financially naïve.

Many wealthy people own gold Contradiction
There are many wealthy people who own gold and silver. Precious metals aren’t considered an investment, they are used for Wealth Preservation. To learn more see: Why the Wealthy Own Gold.

It Can’t Happen Here Premise
Many people believe that it cant happen here. What they are saying is that they believe that the United States can not fail economically.

US Money has failed (and has been devalued) Contradiction
When the US was just getting started, the Continental currency failed.

Beyond that, there have been many United States currency devaluations though the past 235 years.

Final Thoughts on Check your Premises
There is a great deal of misinformation, poor guidance and contradictions about finances, economics, politics and more.

This web page (and the pages it links to) provide a samplings of financial contradictions to help you hone your skills in identifying and resolving them for yourself.

The ability to identify and resolve contradictions is a critical thinking skill. To strengthening your critical thinking skills see the sister site: Problem Solving Techniques.

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