Bitcoin is immune to rising hyperinflation
The biggest trick the government has ever pulled was to convince the world that inflation was a good thing.
Throughout history, dozens of once prosperous nations have collapsed under the pressure of hyperinflation. Today the US government is $ 29 trillion in debt and inflation is at its highest level in over 30 years. Now more than ever, now is a good time to clarify what inflation is, why it is never a good thing, and what you can do to protect yourself.
History lesson: History doesn’t repeat itself, but it rhymes. Just over 100 years ago, in 1913, the German economy was booming. With booming export activity, Germany was one of the richest nations in the world. Ten years later, in an attempt to pay off huge war debts, the government began printing German marks. Hyperinflation quickly followed and prices got out of hand. In November 1923, the price of a loaf of bread was 200 billion marks. Paper bills became so unnecessary that they were burned as a cheaper alternative to firewood. With hyperinflation ravaging the economy, crime skyrocketed, poverty became the norm, and rebellion began.
What is inflation: Economists will tell you that inflation is a sustained rise in prices. However, this definition hides a much more sinister truth. By decreasing the purchasing power of your hard-earned dollars, inflation means that you continually have to spend more time working to buy the same amount of goods. Since money is how we value human time, money supply inflation is government sponsored theft. It is the theft of your most precious possession … time.
The real inflation figures: For anyone who has looked at prices recently, it’s clear that the government’s reported 6.2% inflation rate is a gross understatement. The problem is, the government has made it incredibly difficult to calculate this information reliably.
Over the past two years, the number of dollars in circulation increased by 40%. Using this measure, you could estimate an inflation rate of 18% per year. If, on the contrary, you measured inflation using the 1980s CPI basket, you arrive at 14%. However, if you were looking to buy a used house or car, inflation for you might have been a lot worse. While the exact rate is uncertain, it has clearly been over 10% per year since the start of the COVID-19 pandemic.
The cause of inflation: Although the Federal Reserve often uses words like “transient” or “quantitative easing” to confuse public opinion, record inflation rates are a direct result of the expansion of the money supply. To put it simply … the higher the ticket printer burns, the higher the inflation.
Why the government will not stop printing: By having the exclusive right to print money, the government is able to create something out of thin air and play the role of god in the economy. With these newly created dollars, the government is able to support politically advantaged sectors and make fiscally irresponsible pledges to win votes. We have become so in debt and addicted to this government aid that any downturn by the infamous printer could lead to a collapse of the entire economy. The government will not stop printing because it cannot.
Why inflation is bad for the economy: Inflating the money supply allows the government to spend money it has not earned and to exert ever increasing influence in public markets.
In 2020, 44% of US GDP was made up of government spending. Having such a large and fiscally irresponsible force in the market leads to a misallocation of resources. You might be wondering why medical services, housing, and college fees are getting so expensive, despite the fact that technology seems to make everything cheaper. The answer is simple: the government has supported these sectors and prevented the free market from working effectively.
Why inflation increases inequality: Although the government often promises to distribute printed money to the poor, inflation is extremely regressive. By causing dramatic increases in the prices of assets such as stocks and real estate, inflation actually benefits the rich. Meanwhile, rising prices for basic commodities such as food and gas disproportionately affect the poor, as spending on these commodities constitutes a much larger percentage of their income.
Why inflation is bad for society: As wealth inequalities widen and the poor lose hope for the future, society deteriorates very rapidly. It happened in Germany at the beginning of the 20th century, in Venezuela at the beginning of the 21st century, and I think it is already happening in the United States today. Rising political divisions, crime, looting and general tension are symptoms of a society that has lost hope for the future. That’s what inflation doesâ¦ it robs us of our civility.
Why inflation is bad for the future: Inflation results in a higher time preference. Since dollars will be worth less in the future, there is an incentive to spend them quickly before they lose value. This has disastrous consequences because inflation discourages long-term investment and causes us to sacrifice the future for the benefit of the present.
My prediction: If money printing remains unchecked, I believe inflation will not stop and instead increase to levels unimaginable before. This will lead to an increase in wealth inequalities and a destruction of the social fabric. Poverty, looting and crime will become more and more common, and the United States will become more and more divided socially and politically.
What can you do about it: The answer is simple, you have to buy durable goods that resist and even take advantage of the ticket printer.
For decades, the mega-rich have done this, buying hundreds of millions of dollars in paints, beachfront properties, gold, and stocks. Although this strategy has been successful, each of these asset classes suffers from one or more of the following issues: illiquidity, high barriers to entry or risk of dilution.
However, there is a new emerging asset class that offers much better protection against inflation. This asset class is bitcoin. While critics are quick to dismiss bitcoin as a store of value due to its volatility, this is misguided. Bitcoin has and will continue to offer the best long-term performance of all asset classes. In times of inflation, you want to own assets that cannot be diluted. Bitcoin is dilution resistant money.
Ultimately, my intention is not to be too pessimistic, but rather to let you know of a scenario that could possibly happen. With forethought and preparation, the worst of these outcomes can be avoided. Unfortunately, for decades we have been led to believe that inflation is a good thing and that so many people will not be prepared. Hope you are not one of them.
This is a guest post from Leo. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.