The Truth Behind Inflation

You have heard of inflation since you were a child. Your grandmother used to tell you how she would buy a milkshake for 5 cents. Or how your dad used to make 25 cents an hour. Inflation has been ingrained into our heads as if it was a normal course of action for money. Government has told you there is nothing to worry about regarding inflation, as they are constantly viewing CPI levels to keep it in "check". In this weeks blog I will be discussing inflations role and how it is to affect the macroeconomic backdrop for years to come.

Currently CPI, a government created construct, has been used to gauge levels of inflation. CPI measures a basket of goods such as, food, gas, apparel, etc, and then it draws a statistical proportion for household income. However, it has many "loopholes" (for lack of a better word) that allow governments to hide the true levels of inflation. One example would be what CPI determines as a "seasonal change" for a good. They might consider a $1 rise in tomatoes over the course of a year to be a seasonal change, yet seasonal change may have almost nothing to do with it (and that's often the case). CPI also fails to accurately measure things that have truly been inflated since the beginning of QE.

These are the same things almost every american needs and is often most sought after. College tuitions (a 25% increase since the 2008 QE stimulus), soy beans (50% in last year), sugar (13% increase since last year), wheat (18% since last year), lumber (53% since last year), steel (57% since last year). Valuable assets like equities, treasury yields, land, minerals have also all seen a dramatic increase since 2008, which was one of the most notable launches of stimulus and expansion of the monetary supply in history of man. Just think of how much cheaper life was in 08 then it is now. For crying out loud they don't even offer a real dollar menu anymore. One more thing to examine is wages; which have not been able to outpace the standard of living for quite some time. Why is this? It is because our purchasing power has been devalued while life around us continue in the same manner. All of the stimulus we have created have hurt us rather than help us.

This narrative goes against the keynesian CPI economic mindset: that inflation has been kept at a 2% level since 08, yet we can see that is not the case. Inflation is quite a simple concept and the austrian school of economics has the best grasp of it by far. Austrians see it this way, when you expands the supply of something, it is worth less, and more of the thing is required to satisfy the original amount. Think of a limited edition porsche; only 100 ever made. Well that "purchasing power" of that porsche could get you 100 toyota camrys. What happens when the manufacturer goes "we need to make another 100 cars", well then the value of that car is inflated. No longer can you get 100 toyota camrys with that car, rather only 50. Your purchasing power has been robbed because the manufacturer decided to expand the supply of cars. No longer would that car be so attractive, because its value has been so diminished.

This has never been more prevalent in our modern society. Fiat money (something that can be created out of thin air) has been the main problem in this regards. The federal reserve has made it quite evident they will continue to expand the monetary supply, especially with Janet Yellen and Joe Biden by their side. Stimulus will flow out of washington by the trillions and many will be badly hurt by it (specifically the poor as they hold no assets to protect their purchasing power against inflation). It is easily the most prevalent and important issue we must face. Just look how much the dollar has been diminished since the 1900s!

There is only one way to fix all of this; a return to a sound money standard, specially a bitcoin standard. Sound money produces the opposite of inflation. This phenomenon is called deflation, which is when everything around you goes down in price terms. Prices of goods, housing, tutions, land, etc. all goes down. This is because no matter how hard one tries sound money cannot be expanded in the same way as fiat. This is why bitcoin is the best sound money we have ever seen. There will only ever be 21 million bitcoin, yet there will never actually even be that much! Coins will be lost, resulting in a lower monetary supply, and eventually the number of users will also increase, meaning less coin for everyone. As this happens the purchasing power of these coins will be able to get you more.

This is the fundamental difference between fiat and sound money. One robs you of your purchasing power, making you poorer and poorer by the day. Whilst one increases your purchasing power making you richer and richer by the day. This is why fiat is evil, as it hurts those who are most vulnerable.

Inflation will be America's, and the worlds, biggest issue in the coming years. Everything around you will continue to increase in price, meanwhile your wages and stock market returns will be unable to outpace the level of inflation. View this chart showing bitcoin supply vs fiat supply.

As you can see the monetary base is increasing in a parabolic manner. This is while bitcoins supply is being halved every year. And this is precisely the reason why bitcoin has been able to outpace the monetary supply and inflation this past year. This is the reason why bitcoin will achieve higher and higher highs over the years. As long as they continue to print bitcoin will rise, no matter the number. Fiat has no bottom like bitcoin has no top.

This last chart will show you what happened to the German mark during the 1920s (which was when Germany suffered from severe hyperinflation from an expansion of the M2 supply).

One gold mark went from close to 1 paper marks to 1,000,000,000,000 paper marks. Basically gold, the sound money in this scenario, maintained and increased its value while the fiat paper money lost all of its value relative to gold. Those who had gold were able to maintain their purchasing power vs those who had paper marks were not. This is what is happening with bitcoin and the dollar.

Understand that inflation will cause immense damage to the economic ecosystem. Politicians will continue to hurt our livelihood, as they promise free money, cancellation of student debt, UBI, etc. The best way to protect yourself is bitcoin. Hedge yourself against the dangers to come and prepare while you can.

WE NEED SOUND MONEY!^