When the money supply is increased, you get screwed. The world currently runs on US Dollars as the world reserve currency. When the Federal Reserve, which is the central bank of the United States, creates more US Dollars, it has several underlying psychological knock on effects on the users of that currency, like that subconsciously we all know our dollar will buy less in the future, so we don’t save it today. If we do want to ‘save our wealth, our only option is to ‘invest’ it, or give it to someone else to use temporarily, like a retirement plan. The person holding your investment then has to dodge the damages of inflation by putting your capital to productive use. In the terms of most 401k, IRA and Pension plans, your savings is likely being loaned out, or ‘re-hypothicated’, and being used to gamble for outsized returns. More on this in a minute.
By keeping your savings outside of the dollar, your purchasing power is saved against inflation. As the dollar loses value, your stock or bond or gold or art piece or sports car or home or collection of Nike’s maintains your purchasing power in inflation adjusted terms. When you sell the Monet and gold bars, you are able to buy relatively the same amount of goods and services as before you bought them. In 2001, 1oz of gold was around $700. Today, you need $1686 to buy 1oz of gold. It’s because the dollar is worth considerably less today than it was in 2001. Adjusted for annual inflation of 3.47%, $1,000 in 1950 paid for $10,000 worth of goods and services in today money. $1,000 in 2020 can hardly cover just the rent. This is inflation, you are feeling it. You don’t need to make more money, you don’t need to work more hours or work 2 or 3 jobs. You don’t need to spend less, we need to use a different money, ours is broken.
When the Federal Reserve plays with adjusting interest rates and increasing the money supply, prices in every market go up. This sets the stage for a company to borrow from the bond market for cheap and sell their stocks for expensive. A company can get a loan at near 0% interest rate, essentially free money. They can then use this money to buy back shares of their own stock, creating inflation in their stock price. When a company’s stock goes up, it attracts passive investment capital from investors, and that company is able to unload their bad debt onto investors in a legal way while increasing their own salaries. Companies that were practicing this just 6 months ago are now in line at the Fed window to receive even more money at even lower rates to prevent their share prices from collapsing and protect these companies filing bankruptcy. The money they are receiving is decimating our purchasing as its created. These insolvent companies and hedge funds and central banks are quite literally stealing money out of our pockets while sprinkling words like ‘quantitative easing’ and ‘market intervention’ and ‘protection program’.
The prices in every market right now are being completely controlled. Far less goods and services are being created now than 6 months ago, and the money supply is only increasing. The Federal Reserve is doing everything in their power to keep the financial economy from crashing while the real economy is almost completely on pause due to covid19. Prices in the market are essentially being completely controlled by central banks and corporations, which naturally means it’s being run in a way that fits their best interests. The stimulus check they sent out was a bribe, and your contribution to the bailout of corporations and insolvent pension funds was about $16,000.
Central planning is inefficient and serves those who do the planning at the expense of everyone else, while causing everyone else to be reliant on the central planning system due to it’s large over reach. No one group is able to decide what is best for everyone else. I know I personally did not appoint these people, and I do not believe most of them are capable of being in the positions that they are in. The Federal Reserve is past its expiration and it’s time to remove extractive government programs and bring equality, globally, into finance in this new era. Free market capitalism in legacy finance is dead. Individuals should make their daily decisions based on their own needs and wants for pricing and capital allocation.
An example of the flaws of central planning using toilet paper: Grocery store A (central planner) placed restrictions and said *2 rolls per customer* and the price of each roll is $2. B grocery store has no limits and sells out before raising prices. There is now very long lines at A grocery store and a section of society that controls more TP rolls than the other half. This creates a black market for B grocery store customers, who can sell their TP rolls for a premium at $6 each roll, tripling their investment. People who have a propensity to break the rules would find themselves having full supply and paying more, while people who follow the central planning rules wait in long lines, risking the possibility of getting nothing in the end.
When a central planner says “we are more concerned about the production of toothpicks than toilet paper right now” then their resources will be used to create toothpicks rather than Toilet Paper, leading to further shortages in a wanting market. This example isn’t the best for comparing to a wide scale setting, but supply shortages and rising demand should naturally create higher profits, which creates more demand for the labor and supplies needed to increase the supply of that more profitable thing.
When the money supply is being increased as well as directed to certain areas of the market, there is no natural economic growth. If you aren’t sitting at the table with the money printer, you are getting screwed. Many people believe the answer is to “just make more money”, but we all need to consider if the money we are using has no ceiling, how much is that money worth, and why would we want more of it?
The only safe haven from this is Bitcoin. The only globally accessible free market let in the world in 2020 is quite literally the Bitcoin network. Bitcoin can save the world if we let it, all we have to do is buy and hodl.