If you keep your money in a savings account you better read this! Due to unprecedented money printing in recent years inflation all around the world has been speeding up like crazy. What is more, this is just the beginning and we can expect with high certainty that things will only get worse. Why is this happening and how to protect yourself from it? Follow along to learn more!
A nickel ain’t worth a dime anymore -Yogi Berra
As we can see from this chart the purchasing power of the US dollar has been on a steady decline for more than 100 years now. The dollar is worth less with each year and the devaluation process has really sped up this year.
Let’s have a look at some current inflation data from around the world.
US inflation rates.
Here we’ve got Poland, 6th economy of the European Union.
These numbers don’t look very good, right?
If you think that 5% is pretty terrible, check out the data from some less fortunate countries:
55 percent ?!? How can you even survive living in a country with such an inflation rate?
If we take under consideration that the inflation statistics from the western economies are counted in a way to show as little inflation as possible the picture gets even gloomier.
But why should you care about all this fuss?
Inflation is a pickpocketer with his hand in your wallet, and he’s stealing from you every day.
Inflation is the reason why nowadays, even with all the advancements, both parents have to work to support the family while only a couple decades ago one working person was enough to provide for the whole family.
It’s time to take the pickpoketer’s hand out of your pocket!
Before we talk about how this can be done, let’s first talk a little more about the reasons behind all of this…
Why is this happening?
- The catalyst – governments reacted to the pandemics by shutting down the economy and printing money like never before. Lockdowns created the supply chain shock that in turn drove the prices even higher (less stuff available on the market makes the prices go higher, like the recent price increase of the cars in the US).
- Money printing issue – dollar has been losing it’s purchasing power for a long, long time. Since the central banks can create money from thin air, just by printing new bills or entering a big number in their computer our money supply has been growing like never before.
Remember the great inflation in 1970 when prices in the US went up by 14%?
Now check the chart above and compare the money supply growth from this period to what we have now. This stuff is really scary!
The FED printed around $10 trillion in the last 16 months. This is almost enough money to buy all the gold in the world, printed in under a year and a half.
By the way, some of this money went into buying corporate bonds, and Berkshire Hathaway got a piece of the cake. Last couple years were pretty good for Warren Buffett’s company as Berkshire buybacks reached over $30 billion since the beginning of 2020. I am not sure about you but for me FED giving freshly printed money to big corporations so they can buy more of their own shares smells pretty fishy…
David Kotok, chairman and chief investment officer at Cumberland Advisors also had something to say about that, telling CNN Business “The Fed is now in the business of picking corporate winners and therefore by definition also losers,”
Getting back to the subject of inflation. The situation is not good and it will get even worse. Inflation is directly, positively correlated with the velocity of money. Velocity of money is a measurement of the rate at which money is exchanged in an economy. The more we use the money the higher velocity it has. Due to all the uncertainty in recent years the velocity of money dropped significantly as we reduced our spendings trying to save as much as possible. As the worldwide situation gets better (it will get better right?) and we start to spend all this money, the inflation will speed up even more.
Are we going to see hyperinflation in the US? Hopefully not but this is not out of the picture…
The world has seen many cases of hyperinflation, including:
- Germany in 1920s
- Peru in 1980
- Poland in 1990s
- Brazil in 1990s
- Zimbabwe in 2000s
OK, let’s talk about ways to safeguard our savings from inflation, just in case.
After all, we all know that our great leaders will not allow this to happen, right? 😉
Short disclaimer here: I am not a financial advisor and this is not personalized financial advice. This is just educational material.
So, how do we, the little guys with no friends in the Federal Reserve, preserve our wealth in these unprecedented times?
The short answer is – we buy assets.
Real Estate, gold, shares of good companies (Warren’s Berkshire might be a safe bet 🤣)
And, of course – Cryptocurrencies.
Especially the big ones like Bitcoin and Ethereum.
Why are they such a good hedge against inflation?
First of all Bitcoin has a limited supply, politicians just can’t create more of it. It is also transparent, accessible globally and is not controlled by governments nor institutions.
Ethereum, on the other hand, has utility that is growing like crazy. If you add to the equation all the innovation on this blockchain and the Ethereum’s supply crisis, this asset has pretty good perspectives for the future, even in the high inflation times.
Both of these assets have experienced massive interest from institutional players this year. Many big guys are buying not only Bitcoin and Ethereum but also some other, lesser known cryptocurrencies. Here is an interesting website that covers institutional investment in Bitcoin, check it out – https://www.buybitcoinworldwide.com/treasuries/
The main difference between cryptocurrencies and regular centralbank-printed fiat money is that the former are governed by code. What is more, this new kind of network money does not need 3rd party control for it to work. This in turn allows regular people who use cryptocurrencies to make profits that before were only reserved for the institutions and banks, and creates strong communities around these projects.
Blockchain-based platforms even allow risk-averse investors to make high interest. You can deposit stablecoins (cryptocurrency with value pegged to US dollar) and make over 10% a year. This is more than enough to cover the hidden cost of inflation (at least for now).
Word of caution here.
Investing in cryptocurrencies is very risky, and there are a lot of things that can go wrong. Way more than when you invest on the regular market. Remember to never invest money you cannot afford to lose and to understand the asset you’re about to put your money into.
Crypto can save you but it can also be the final nail to the coffin if you don’t know what you’re doing. Learn more about cryptocurrencies by reading my book and joining our free Telegram group (link below).
16-08-2021, Written by Piotr Borowiec