In today’s financial climate, where the silent thief of inflation is eroding the value of your hard-earned savings, it’s crucial to awaken to the realities that govern our economic environment.
The narrative that saving money is the safest way to secure your future is being challenged by the relentless force of inflation, which diminishes the purchasing power of your savings.
This article will unveil the most egregious financial deception of our era: the belief that saving alone can safeguard your financial destiny. We’ll explore the power of acquiring assets as a fortress against the insidious erosion of inflation.
It’s time to arm yourself with knowledge and take control of your financial journey. Let’s embark on this eye-opening exploration together and discover how to outsmart the most EVIL financial lie of our time.
Before we jump in, if you’re new around here or just beginning your Bitcoin Journey, be sure to hit the clap button and follow me to never miss out on the latest article from Bitcoin Basics.
And finally, a quick disclaimer: this article is for entertainment purposes only and should not be taken as financial advice.
With that out of the way, let’s get started.
Investopedia, the online financial encyclopedia, defines inflation as the “decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy.”
Economists in institutions tasked with measuring inflation over time have established several methods of doing it.
The most popular method involves establishing a basket of specific goods that most households purchase and tracking changes in their total cost, a value commonly referred to as the Consumer Price Index (CPI).
This index can go up and down in the short term, but over the long term (at least over a decade), it has a general upward trend in most economies around the world, including the United States. The year-on-year inflation rate in the US has been in the positive since 1960, except in 2009, when it was -0.36%.
According to data from the US Bureau of Labor Statistics, what $100 could buy you in 1993, you need $215 in 2023 to buy. That means the US dollar has lost nearly 50% of its purchasing power in three decades.
Of course, inflation is not a good thing at all, especially for a consumer with savings they intend to spend in the future. While your savings might remain the same in figures, they lose purchasing power over time.
But what causes a currency like the US dollar to lose its purchasing power?
The short answer is the printing or addition of more money into circulation.
There was a time in the past when that actually meant printing of more paper money or minting of more coins.
Today, with digital banking practices, physically printing money ahs been replaced with simply adding more figures out of thin air to an account. This often happens when a bank customer takes a loan or mortgage, which could then be spent on a home or a project, which in turn, increases the amount of money in circulation.
This is what is known as the fractional reserve banking system.
In this system, a commercial bank can issue loans up to 90% of its customers’ deposits. Many of these loans are recycled back as new deposits that can be used to issue even more loans. As this unending cycle continues, the overall amount of cash in circulation increases progressively.
Data on inflation is generally easy to obtain. Many times, all you need to do is a simple Google search. In the US, the Bureau of Labor Statistics releases monthly inflation statistics to guide government policy and financial market decisions. In other countries, similar public institutions are tasked with this responsibility.
Central banks such as the Federal Reserve and commercial banks are other likely sources of this data.
Unfortunately for the ordinary saver who needs this data to plan for the future, the government, through the Bureau of Labor Statistics, and the banks are generally incentivized to portray inflation as low as possible.
That is because they benefit from high inflation, especially when it is presented as lower than it is. In addition to taxes on economic activities, the government often raises revenue for its expenditures by creating new money as loans from the Federal Reserve.
This is often called an inflation tax, and it is easier to raise because it is not easily noticeable to citizens, like income, corporate, and value-added taxes. However, it is often more impactful on a large section of the population than regular taxes.
That is because creating more money for the government to spend increases the money supply. When done on a large scale or continuously for a long time, it dilutes the purchasing power of whatever money you earn, hold, or have in savings.
According to some estimates, the US government raises as much as $2 trillion annually from inflation taxes, nearly a third of the budget.
For their part, the central bank and financial institutions generally issue the newly printed money as debt to the government and other customers and, therefore, receive interest rates for it. It becomes a new asset on their balance sheets.
What are the chances that the inflation rate is under-reported, and how can that even be achieved?
The ability to make easy and quick revenue from printing more money without being discovered is a compelling incentive to publish data that downplays its possible negative impact.
Indeed, the actual calculations could always be right. However, there is always a significant leeway to play around with the foundational data of the calculations.
While everyone is interested in the calculated and published number, few pay attention to the composition of the basket used to track inflation and, in particular, the changing nature of its products.
Due to a lack of clear and firm standards on the products in the basket, economists can easily substitute one form of good with another. While the goods remain the same, the different forms come to the market at different prices and are also guided by different dynamics.
The same strategy applies to tracking inflation in specific markets, such as real estate.
With the existing incentives and possibilities to mislead with the numbers, you should always take the official data on inflation with a pinch of salt. Indeed, for appropriate planning, you are better off always assuming that the inflation is higher than it is officially reported.
It is highly likely that inflation rates are generally down-reported so as not to create public anxiety. That also means we are always at the risk of being blindsided by a financial crisis.
Many times, a financial crisis has seemed to come out of nowhere. In 2008, for example, the entire world seemed to have been found flatfoot by the collapse of major investment firms such as the Lehman Brothers and Bear Stearns.
However, the trend and signs that the financial markets were heading toward a major crisis existed long before it happened. It is only that the actual market stats had largely been kept from the public.
If you thought this mentality of the insiders keeping stats from the public has gone away, you are mistaken.
The US inflation rate, as reported by the Bureau of Labor Statistics, has reached levels not seen since the early 1980s. It was 1.23% in 2020, 4.70% in 2021, 8.0% in 2022, and 4.1% in 2023. The year 2024 is projected to be above 3%.
Considering the high possibility that these numbers are underreporting, we could be at the edge of a financial collapse, and you would not know about it until it has happened.
It is up to you to be aware of this possibility so that you can do more than use the official stats to protect your value.
But what exactly can you do to protect your value?
The best way to protect yourself against inflation is by storing your wealth in Bitcoin. You do not need any service provider to help you with storage or other critical logistics by third parties, and you don’t need to keep it in a space that is noticeable to others. As a matter of fact, nobody will ever know that you hold a significant amount of assets in Bitcoin unless you tell them.
And if you need to move during times of crisis, whether financial or political, you do not need any elaborate logistics or permission from any authority. A piece of paper, a USB stick, or a simple memorized seed phrase is all you need to move all your bitcoin across international borders.
Bitcoin is also the most deflationary asset. Gold and silver are marginally inflationary as new mines can always be discovered, and an amount can potentially be minted forever.
With Bitcoin, a hard cap of 21 million will never be removed. If anything, the amount of Bitcoin in circulation will continue to shrink over time as some of it is lost due to unrecoverable private keys. Close to 4 million Bitcoins have already been lost for good, bringing down the amount of available Bitcoin over time to about 17 million.
Saving in Bitcoin has introduced a fascinating dynamic to personal finance, particularly when examining the cost of everyday items. For instance, the price of an egg, when measured in Bitcoin, has shown a remarkable decrease over time. Check this graph out, where the price of Eggs can be seen to collapse in an exponential curve against the price of bitcoin since 2019. This is attributed to Bitcoin’s deflationary nature, where, unlike traditional fiat currencies that tend to lose value, Bitcoin is designed to appreciate. By consistently saving and investing in Bitcoin, you can potentially experience a lower cost of living as your purchasing power increases.
This phenomenon is further amplified by the strategy of dollar-cost averaging, which mitigates the impact of market volatility and can lead to significant long-term growth of your savings. As Bitcoin continues to mature and gain acceptance, it could redefine the concept of saving, turning the tide in favor of the consumer’s buying power. The implications of this shift are profound, offering a glimpse into a future where the value of savings could actually increase over time, making life more affordable in the process.
So, what do you think? After everything that we have discussed today, is bitcoin the miraculous cure for inflation, or is it just another financial bubble waiting to pop?
At the end of the day, I think we can all agree that keeping your savings in a bank account, over the long term is a losing strategy. So what does a winning strategy look like for you? I am looking forward to reading your comments.