Time is the most finite resource one has
On average, humans are alive for 692,040 hours, around 400,000 of them we can be productive during. In this productive time, we work for money that we try to save for future use but how is inflation effecting those savings?
Everyone understands the act of saving money. Few understand that the asset you choose to save with matters much more. Some assets decline dramatically in value over the long term. And by holding depreciating assets, your savings are likely to be vanishing into thin air.
Inflation, sad but true
The sad truth for people who use fiat money to save is they fall in the aforementioned category. The value of money is falling at a government declared rate of 2% each year, however, because of record-breaking stimulus measures conducted by the world’s central banks to expand the money available in circulation, it is likely to be falling much faster.
People that are aware of this issue use services that let them make bets with their capital to try and beat this devaluation i.e. like investing in financial products. However, the every-man and woman, who is lucky if they can put a small fraction of their salary away for savings, is left in a constant state of financial erosion, as the value of their cash in the bank rapidly dwindles.
Why is this happening?
The simple reason why the value of money is going down is because the people in charge of it – namely central banks – have permission to increase and manipulate its supply.
This was not possible in the early 1900s as the value of money was tied directly to the price of gold, a rare and valuable asset. But this link was abolished in many nations around the 1970s. Today, money is backed by nothing more than public trust in financial and government institutions (learn more about this here).
What are the rules of money supply?
The same rules apply to money as they do in broader free markets – more in supply means the less people are willing to pay for it. In the current economic setting, the short-term rationale for an increased supply of money coupled with low interest rates is to fuel optimism in the economy.
Particularly in a time like this, when the global economy has stalled, freshly minted cash with low repayment rates means banks can lend confidently to individuals and businesses, who in turn can fuel economic productivity.
If you read into this tactic you will understand that this optimism is artificial. The economy is not growing at all on its own accord, but instead because the authorities have given it a triple shot of stimulus money with a side of historically low interest repayment rates.
Like with any stimulus, what goes up must come down. The long term impact of this fuels unsustainable bubbles, as people borrow more than they can afford to pay back at higher rates; inflation of the goods you buy and use daily, and shrinkflation – when prices of products you buy remain the same but manufacturers offer less in quantity because of increased production and raw material costs.
Think of money supply as wearing brakes on a car – if they are somewhat worn it will take dangerously longer to activate the brake and stop the car. But there comes a point the brakes become too worn. When this happens, the car is destined to crash. Our economy could be on the verge of this crash.
How can I protect myself from inflation?
Bitcoin is an alternative savings asset that can protect you from the impact of inflation. Think of it like a digital gold but with a fixed amount. It is scarce – there will only ever be 21 million bitcoins, and each of them can be broken down into 100 million satoshis, allowing plenty of room for its value to grow over time, which it is shown to be doing as more people start to adopt it.
And unlike money, which can be manipulated by select people and printed ad infinitum, bitcoin uses maths to prevent this. Additionally, bitcoin it is not cheap to ‘print’, unlikely money; it’s takes a lot of computing power and energy to create them, which represents a lot of Bitcoins value.
If you’ve ever wondered why Bitcoin is valued so highly, hopefully you now have an idea with what it is competing with. This is why learning about Bitcoin and using it as a savings asset and protection from possible inflation could be a wise decision to make and this is something we can help you with at FastBitcoins.
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