Did you know around 1/4 of all US dollars in circulation were created in the last year?
This is highly, highly unusual.
I’m not making it up: view the M2 and M1 Money Supply directly from the Fed. When looking at M2, compare the amount in circulation at the beginning of 2020 to now.
This will affect every person, rich or poor. It will affect Americans first, but eventually it will matter for everyone since the US is still the reserve currency of the world.
Who cares? This is something for economists, not me.
When inflation hits, your groceries, gas, and other normal expenses will increase. It’s not starting “next year” but is already happening.
I’m not an economist, but you don’t need to be to understand the basic principle of supply and demand. If there is a greater supply of something without a change in demand, the market value of the thing will decrease.
Let’s say you’ve got 10 people with $1 each all bidding on the same item. The most they can all bid is $1. Now give everyone in the room another dollar. Everyone is twice as rich, right? Except when they all bid on the same item, the item now have an average bid price of $2.
The demand is the same, but now the price has gone up—purely because of inflation. There is more supply and equal demand.
The real economy is a lot more complicated than this, but the principle of supply & demand is universal. There is roughly the same basket of goods being bid on, but now more money to bid on it. Inflation is not coming—it is here.
There’s a meme floating around now about the price of lumber. It’s up 400% year-on-year with no sign of slowing. Perhaps some of that is due to greater interest in people moving away from cities and building homes, but that can’t be all of it, or else we should see rental prices falling too, right?
So what do you do?
Start investing—especially if you think you can’t afford to.
Here are three ways people hedge against inflation: stock, real estate, and Bitcoin.
Investing in Stock
This is the easiest because you’re probably already doing it. The way inflation is happening in this country (at the moment) is largely through loans and purchasing to and from large corporations.
What happens when you find out a publicly-listed business is about to either (1) be relieved of a large debt burden, or (2) otherwise receive a massive purchase order?
Both of these are bullish, so of course you can expect the price of that stock to rise.
When this happens on a broad market basis, you can expect the entire market to rise.
This is so boring, but if you don’t know what single business to invest in, just invest in the whole market via an ETF like SPDR S&P 500—also called $SPY when you look up the ticker— but this is not financial advice.
If you think this is legally-qualifying investment advice, you are dumb and should not reproduce.
Take an extreme example: this two-year-old article of Venezuela’s stock market (lmao) going up about 200,000%. This wasn’t because everyone ws getting rich, but rather staying the same while the value of the Bolivar crashed. God knows what their investments are actually doing, if anything. They’re probably honestly tanking further as the last dregs of foreign investment escaped on the lifeboats of their economy.
Owning Real Estate
I don’t love this one, because real estate is incredibly illiquid, is subject to a lot of factors (like local regulations, weather, what the people next door to your property are doing with theirs, etc.).
Nevertheless, it is a consistent hedge against inflation over the years.
Compare the prices of a shitty property in San Francisco 50 years ago to what it’s worth now (without renovations). Of course, that’s not just because of inflation, but more of an illustration that you don’t have to be smart to win at real estate—just hold forever.
Of course, I don’t want to hold forever. I want to live, dammit. So you KNOW I’m about to suggest this one…
To me, this is absolutely the best way to preserve your wealth. Aside from having better year-on-year returns than literally any other asset, you will escape all the BS shenanigans the Fed can pull on the markets.
- You can transfer your wealth more easily (instead of routing it through byzantine labyrinth of banking infrastructure).
- You can transport your wealth easily – as easy as putting a hard drive in your pocket and walking away
- Rising adoption – demand is increasing faster than supply
- Future infrastructure – this is a giant rabbit hole, but in the future, people will not be transferring Bitcoin into dollars to buy things, but paying directly with Bitcoin. This has already begun.
To me, it has the greatest possible upside for the precise reason it is a deflationary asset that cannot truly be regulated. I easily see BTC reaching $100,000 by the end of 2021. No promises, but I am personally investing on that premise. I also see it going much, much further over the next 10 years.
Buy Bitcoin. This is financial advice.
Bitcoin simply does not have the PROVEN 6,000 year history that physical gold and silver do. NO ONE knows if it will protect you during hyperinflation because it is simply too new. Go with what is GUARANTEED to protect you. Bitcoin might not even survive this (we honestly don’t know), but physical precious metals will.
I like that line of thinking on its time-tested nature. Do you mean physical gold, or more gold-based derivatives?
The advantage I like about Bitcoin vs gold is the ease of transfer, easier to use and spend (and getting easier with the development of the lightning network), and the fact that it’s still very early on the adoption curve and yet even governments are trying to acquire it.
Plus, the banning of private ownership of gold in the past (in 1933) is a strong precedent that the same kind of thing can happen again in the future.