Fix The Money, Fix The World
TRH #45
Hey everyone, long time no read! Sorry I have been absolutely slacking but we have a hot topic for the day! We are going to discuss inflation versus deflation (You may be thinking, boring! but IMPORTANT! I tried to make it entertaining). We will elaborate on both inflation and deflation, give you some examples, throw out a book recommendation, and talk about what things may look like in the future. I think differentiating between these two topics is extremely important in predicting where we go from here. Let’s start off with definitions from the Oxford dictionary and then I can elaborate from there.
Inflation
A general increase in prices and fall in the purchasing value of money.
Deflation
Reduction of the general level of prices in an economy.
We all have opinions and thoughts on these two words which have been formed throughout our lives. I want you to take an open minded approach while thinking through this and be ok with questioning any preconceived notions you may have. The reason I say this is because throughout all of recorded history money has been inflated by the people in charge of it. They teach us that inflation is not only good, but necessary and they teach us that deflation is bad or hardly even mention. Monetary inflation has contributed to the boom and bust cycles we referred to as a business cycle. It has also contributed to the boom and bust cycles within civilization itself.
As we have inflation within our money things get more expensive. If our basic needs get more expensive society starts to deteriorate (gas, food, building supplies, housing, healthcare, education). As our money loses it’s value, saving becomes disincentivized and everyone is encouraged to seek out other forms of storing value - real estate, land, stocks.. you name, but they all have something in common: relative scarcity.
Our money is not scarce so we must buy things that are in hopes of preserving value into the future.
The hidden truth: if you aren’t growing faster than the pace of inflation you are falling behind. Put another way: inflation is an indirect theft of your time.
Let’s dive into deflation now. The definition says that prices go down. Think about that for a second. Deflation is the reduction of prices. That would be amazing! Life would become more affordable and who wouldn’t want that. The thing is that everything is relative and if prices are going down that means money is going up. Your money is becoming more valuable relative to other goods and services within the economy. There are two ways this is possible.. a recession OR scarcity of money.
They teach us that deflation is bad. Why is this? Taxes.
Let me give you an example around your wage and prices of goods.
For sake of easy math let’s say you make $100k and that gets taxed at 20%.
$100k x .2 = $20k in taxes for the government
Now today you get a raise of 5%, congrats, and you now make $105k
$105k x .2 = $21,000 in taxes, the number goes up the more you get paid. Thanks Uncle Sam. He’s your favorite uncle and he gets to benefit because you’re a good employee.
Now think about it… is a raise in your wage the only way to get “paid more.” Remember we’re talking about deflation.
What if the prices of everything around you went down collectively 5%?
You still make $100k but it buys you 5% more! Again, that sounds amazing but this time your favorite uncle doesn’t benefit and they won’t stand for that, therefore, deflation is a bad thing.
Moral of the story: deflation reduces the tax income of the government and is absolutely not allowed. This is a perfect segway into the next topic.
The concept I’m about to touch on has been emphasized by Jeff Booth in his book The Price of Tomorrow and I would highly recommend everyone gives it a read as I am not able to do it the justice it deserves.
Jeff mentions that technology is highly deflationary and our current inflationary monetary system is in direct conflict with it. Technology is making everything better, faster, stronger, CHEAPER. Just look at your phone as an example, you have everything you need at the tip of your finger and it is only getting better.
Our inflationary monetary system needs to grow faster than the deflationary forces of technology. Here’s the catch though… we think about the growth of technology in a very linear form of thinking when it is actually an exponential. Moore’s Law says that the speed of technology is doubling every 2 years and therefore we need an exponential amount of inflation to combat it.
Remember, inflation is the devaluation of our money. Therefore, if this is true, we need exponentially more devaluation of our money in order to offset the benefits that technology is providing us. Jeff illustrates this wonderfully by showing the collective value of the world economies (GDP) and how much debt is in the world. In the year 2000 the world GDP was about $33.5 trillion and the world debt was approximately $62 trillion. Said another way, it took $62 trillion dollars of debt to achieve $33.5 trillion of growth.
As of 2021 the world GDP was about $93 trillion and the world debt was about $303 trillion. Said another way, it took $303 trillion of debt to achieve $93 trillion of growth. Breaking it down even further, in the last 21 years it took $241 trillion of debt to create $59.5 trillion of growth.
The take away here is that it is taking A LOT more debt for a little bit of growth. If technology is exponentially deflationary, then our money will be exponentially inflationary. Here is a graph depicting the problem from within just the United States, not the world. RED = DEBT; BLUE IS GDP.
We are going to switch gears a little bit and talk about bitcoin. Bitcoin is a deflationary monetary system. Something the world has never seen before. Bitcoin is hard capped at 21 million coins and restores the store of value element to money. Savings is incentivized again and prices of goods and services around us are able to fall in relation to our money. This is quite abstract and hard to grasp as we have two competing monetary systems and right now everything is priced in dollars. Think about it like this: 5 years ago if you had $10k in cash and $10k in bitcoin… which one buys you more right now? Bitcoin does because it is scarce and to put it frankly - bitcoin is a far superior form of money, most of the world just hasn’t figured that out yet. Bitcoin’s deflationary monetary policy maps directly onto the deflation technology is providing humanity. Under a hard money standard people and government alike are not able to spend more than they produce or they go bankrupt. There is no special money printer available to “save the day.” Having an absolute supply brings back clarity to economic calculation and provides a true cost of capital. Bitcoin provides a much fairer monetary system as nobody is in charge and nobody is able to inflate the supply to their own benefit. We take the trust out of the hands of humans and we place it in thermodynamics, physics, encryption, mathematics, and code. This may sound scary to some and I encourage you to buy a little, play around with it, continue to educate yourself on the topic and you’ll become a lot more comfortable with it as you start to gain an appreciation for the beauty of digital scarcity and the invention of the soundest money the world has ever seen.
Conclusion
Who benefits from inflation? People who own assets, mainly the rich.
Who is hurt from inflation? The renters, wage earners, and poor.
This is where the phrase, “the rich get richer and the poor get poorer” comes from and it pisses me off. So many people are falling into poverty, we have a massive mental health and homelessness issue, crime is on the rise because they can’t afford the basics of life. Everyone is dealing with some form of anxiety or depression, suicide and drug use are out of control. Our health is suffering because nobody has time to exercise and all our food is fast and cheap. Student loan debt is crippling an entire generation and owning a house is becoming unattainable. People aren’t having children for financial reasons and if they do they end up working even more to afford the daycare. Division has never been more apparent, free speech is being threatened, we’re constantly at war at home and abroad… something is seriously wrong and I strongly believe IT’S THE MONEY.
Bitcoin offers a peaceful protest against an inflationary monetary system and a overreaching government hell bent on controlling our every move like a pawn on the chessboard. Start saving in bitcoin and you’ll start to feel the benefits over time. Start using bitcoin and it comes to life. Nobody can stop you from sending or receiving bitcoin. Adoption takes time and I’m here for it. You should be too.
Lastly, if you talk to any money manager or listen to any talking head on financial news they will tell you how to position your portfolio to weather the inflation. They will tell you what stocks you should own. This completely disregards the people without a “portfolio” and the people in other countries without access to our privileged financial markets. Everyone is harmed from inflation and you should just be able to store your value in the money you worked so damn hard for. You shouldn’t have to seek out an investment hoping it’s the right one.
Bitcoin fixes this and as a lot of bitcoiners say, FIX THE MONEY FIX THE WORLD.