Complexity can stop normal people like us from building any wealth (by design).
I have worked in a bank for most of my career. I am happy to say I have been financially stupid for much of my life.
The financial system is designed to be complicated. Because if people understood why the rich become super rich, and the poor become poorer, they might decide to launch another Occupy Wall Street Movement.
Money is taken out of your bank account every single day. You just can’t see it. I wish people knew these things about money sooner so they could live with less stress and spend time on their hobbies or with their families. These things aren’t the whole story. But they will give you simple topics you can explore.
Understand the Truth of Inflation
We’re told inflation is 2% every year on average. I’ve called this out as a lie many times before. If I gave you one million dollars for free you wouldn’t spend all of it on groceries or gas for your car: you’d buy assets. Asset inflation is through the roof.
The inflation secret is out.
The data says inflation is 4.2% over the last twelve months. That’s the conservative figure. Meanwhile, if you place your money in a savings account you get less than 1% interest. So holding onto money is causing you to go backwards by at least 3% without doing anything. This assumes rates on your savings account don’t go negative like they already have in some countries.
Inflation isn’t 2%. Once you understand that, you are forced to look for ways to grow your money that outpace the current 4.2% inflation rate.
Think About What Happens When Interest Rates Go Up
The current inflation rate often causes interest rates to go up. With record global debt thanks to a global health crisis, what do you think happens if interest rates go up? Many people can’t pay their debt anymore.
Interest rates going up can easily cause us to go into a deep recession. And leaving interest rates at zero is problematic too. Knowing which way interest rates are likely to head tells you a lot about what’s going to happen in financial markets. But interest rates aren’t the whole story.
The Global Debt Will Never Be Paid Back
One of the smartest and richest investors in the world, Warren Buffett, quietly said during a conference his company holds every year, the following:
“The [US] debt isn’t going to be repaid. It’s going to be refunded. You better own something other than debt.”
This realization woke up a lot of smug index fund investors. Financial author Michael Hudson says, “It is time to recognize that most debts now cannot be paid.”
History shows that when debt gets uncontrollably high, one option is a debt jubilee. It’s where debts are either written off altogether or reduced. Germany had a debt jubilee in 1948. Germans called it an “economic miracle.” The debt jubilee occurred when the German currency Reichsmark was replaced by the Deutsche Mark.
Changing currencies is one way to change the levels of debt, and who owes who what amount of money.
I’ve said before that there will be a change to currency. Old, non-digital currencies will become obsolete. New digital currencies — both centralized and non-centralized — will become mainstream. Dominant currencies like the US dollar may have less significance over time.
The IMF (International Monetary Fund) called for a New Bretton Woods Moment. This is another sign big changes to money and debt are coming. The Bretton Woods Moment was when currencies were pegged to physical gold. In the 1970s currencies stopped being tied to gold. This meant the US dollar could be created out of thin air.
The value of exchange has always changed throughout history. Why would this moment in history be any different, especially given the record levels of debt that can never be paid back? It’s for this reason you will hear the phrase “The Great Reset.”
The Great Reset simply acknowledges global debt can never be paid back, we need a new financial system, and the ability for governments to create currency out of thin air needs to stop.
Money Is Created out of Thin Air
Stimulus checks, bailouts, quantitative easing, yield curve control, infrastructure bill — basically anything with the word “trillion” associated with it, simply means “create money from nothing” and spend it.
There is no such thing as a free lunch. Money created from nothing has a cost to those who hold that currency.
Money from nothing makes the rich richer and the poor poorer. How? Simple. The rich dispose of the toxic money by buying assets with it. Asset prices go up. The poor don’t have assets, so the value of their free money goes down because there is more in circulation. That’s how simple the money game is when you understand the smoke and mirrors that is currency.
The rich understand that they must get rid of their currency as quickly as possible. The poor think currency is valuable because it buys stuff, but they’re often unaware that the stuff they buy with it goes up in price as more currency is created, so they’re not getting wealthier at all.
True wealth is when you understand currency.
Video to go deeper
I don’t love Mike Maloney. He spends a lot of time making us fearful and promoting gold. But his description of how money is created using animations is brilliant, via his documentary “The Hidden Secrets of Money.”
Change the Denominator You Measure Value In, and Everything Looks Different
When someone says “my stocks or real estate went up” I look at them blankly.
The price of stuff looks like it goes up when you measure it in currency. This is the huge delusion many of us fall for (including me). Ex-Goldman Sachs investment banker, Raoul Pal, says it depends on what you measure value in.
The biggest secret I learned about money
If you measure the price of your home in US dollars then it’s going up and life is great. If you measure the value of your home in gold, bitcoin, ethereum, lumber or some other form of measurement the value looks different.
When currency is created out of thin air by the trillions of dollars, then everybody has more of it and so prices of stuff you want (like assets) look like they endlessly rise. But prices are mostly going up as the amount of dollars in the financial system is going up. See the game?
You become financially smarter when you start measuring value using different denominators. Took me a decade of working in finance to learn that.
Read this to go deeper
This tweet thread called “Do we have the wrong denominator?” will help.
We Are Stupidly Fighting Deflation Caused by Technology
Things should get cheaper. They don’t because free markets aren’t allowed to be free. As soon as a natural recession is about to occur, the central banks like The Federal Reserve step in with trillions of dollars of relief.
This insight from financial author Jeff Booth really shook me: The rise in prices is artificial, driven by an enormous rise in credit and debt.
Jeff argues that technology causes deflation (prices to go down) and this is a natural force we should allow. Instead, we’re trying to fight deflation caused by prices going down due to better efficiency, by creating enormous levels of debt globally.
What shook me to my core is when he said, “Consider this alternative: allowing abundance without the jobs might actually open an entirely new enlightenment era where we have the time to enjoy the benefits that technology brings.”
He thinks jobs being taken away because of technology is a good thing. I hadn’t heard of jobs being lost to be a good thing before that.
The argument is that deflation means you get more for your money instead of less. Inflation is where you get less for your money. So naturally, why don’t we want technology to allow us to get more for our money? Because we’re protecting and holding onto the old financial system.
Read this book to go deeper
You can read more about deflation from Jeff’s book “The Price of Tomorrow.”
You Can’t save Your Way to Wealth. Invest Your Way to Wealth.
Fiona, The Millennial Money Woman, said this. I agree. Low interest rates have caused all of us to become investors whether we want to or not. Money sitting in a savings account is dead. Your savings will rot. A savings account is a melting ice cube of value you earned by using your limited time on earth away from your family to create it.
You know you have to invest. But if you misunderstand inflation, deflation, and governments printing money out of thin air, you will still lose.
Getting smarter financially is about education. The thing I hate most about finance is its complexity. Complexity stops normal people from building any wealth (by design).
Invest your way to a wealthier future by understanding the pros and cons of the major asset classes: commodities, stocks, bonds (debt), gold/silver, bitcoin/ethereum, real estate, and cash.
Bitcoin Isn’t a Get Rich Quick Scheme
The bitcoin price has skyrocketed over the last ten years. Many people mistake this reality and believe bitcoin is a get-rich-quick scheme. Even Richard Branson thinks it is.
Despite the price skyrocketing over the last ten years, it’s not. Bitcoin is a way to protest against the current financial system. Bitcoin is partial protection against money that can be created out of thin air.
Bitcoin is the start of the next financial system, where trust is created by code and not by humans who are driven by incentives to manipulate trust. Bitcoin is digital money that can be sent anywhere in the world without borders stopping the value transfer. Bitcoin gives many who have no access to a financial system, but who have a smartphone, the chance to participate in building the future of the human race.
Bitcoin will eventually be invisible, the same as when you have a video call with your friend and have no idea what computer they’re using, what brand of webcam they have, or what mic they’re recording with. Bitcoin is a technology that will eventually sit quietly behind the financial system as a way to outsource trust to nodes within a network who are incentivized to verify every transaction and ensure consensus.
When the idea of trust is reborn by Bitcoin, then we can begin to rethink the idea of money. Not before. Trust has to exist for money to work. Otherwise, the rich get richer and the poor get poorer by design.
Bitcoin is a protest against inequality.
Books to go deeper
The best book is either “The Bitcoin Standard” or “Bitcoin: Hard Money You Can’t **** With.”
Lowering Expenses Is Easier than Making More Money
I meet people at work every day who are dying to make more money. They jump over the top of each other in meetings to be heard so they can hopefully get a pay rise, promotion, or bonus at the end of the year.
I sometimes fantasize about whispering this in their ear: “If you lower your expenses and stop buying dumb stuff, you wouldn’t need to make more money.” When you don’t need to work so hard for money, the meaning of your life quietly shifts. You become outwardly focused, not inwardly selfish.
Self-ish-ness created dumb money.
Self-less-ness will bring back smart money and help us become financially more intelligent again, so we can solve the real problems of the world and explore new opportunities we’ll remember after we’re one day extinct.