Categories: Blockchain Investments
Topics: Bitcoin

Navigating the Broken Financial Landscape

Our money is broken, and the average citizen is paying the price. 

Inflation erodes purchasing power, meaning that the same amount of money buys fewer goods and services over time. This phenomenon disproportionately affects middle and lower-income families who allocate a larger portion of their budget to essential goods, including food and housing, whose prices have been rising steadily.

The gap between wage growth and the cost of living widens, making it increasingly difficult for many to save for the future or even cover daily expenses. Furthermore, the interest rates on loans and mortgages rise in response to inflation, adding another layer of financial strain. This economic environment underscores a growing disparity with the average citizen facing mounting obstacles to achieving financial stability. 

Official government inflation data, while useful for tracking broad economic trends, often fails to capture the full extent of the inflationary pressures faced by the average household. This data typically reflects the average price changes of a basket of goods and services, but it does not accurately represent the specific spending habits of all income groups. 

In short, the data is very selective and can be easily skewed to fit a narrative.

For instance, lower-income families spend a higher proportion of their income on necessities like food and housing, which have seen prices rise at rates above the general inflation level. Additionally, these metrics do not always account for the 'shrinkflation' phenomenon, where products decrease in size or quantity while their prices remain the same or increase. Therefore, the official figures may underestimate the real cost pressures that consumers, especially those from more vulnerable economic segments, experience in their daily lives. 

Ask anyone on the street and they’ll tell you inflation is eating them alive. My solution for them is to buy Bitcoin. 

Bitcoin is often described as an inflation hedge due to its digital scarcity and decentralized nature. Unlike fiat currencies, which central banks can print in unlimited quantities, leading to devaluation and inflation, Bitcoin has a capped supply of 21 million coins. This finite supply mimics the scarcity of physical gold, which has historically been a safe haven during times of inflation. Bitcoin also operates on a decentralized network, meaning its value is not directly affected by the fiscal policies of any single government or financial institution. 

The Trump and Biden administrations have increased inflation through the enactment of large-scale spending programs. These packages, aimed at stimulating economic recovery in the wake of the COVID-19 pandemic, infused trillions of dollars into the economy. While intended to provide relief and invigorate economic growth, such massive spending has contributed to inflationary pressures. The rapid injection of funds increased demand in various sectors without a corresponding increase in supply, leading to rising prices for goods and services. This situation is emblematic of a classic inflationary scenario, where too much money chases too few goods.

It was exacerbated by supply chain disruptions and a decrease in manufacturing that occurred due to government lockdowns forcing businesses to shut down operations.

In 2022 after months of denying the inflationary death spiral we had already entered, the Federal Reserve started aggressively hiking rates in an attempt to tame it. All the while, the Biden administration was busy passing massive trillion dollar spending bills and sending money to Ukraine and elsewhere.

I was pounding my head on the table as I observed this battle between monetary and fiscal policy play out. Fed chairman Jerome Powell was at least attempting to do the right thing but was hindered at every turn by reckless and profligate government spending. It seems that no matter who occupies the White House, the order of the day is to spend, spend, spend with no care for tomorrow. 

But where does the money come from?

The Federal Reserve plays a critical role in the process known as debt monetization, which is pivotal for funding government spending beyond what tax revenues can support. This process involves the purchase of government bonds by the Federal Reserve, effectively converting the government's debt into new money. 

When the U.S. Treasury issues bonds to cover the federal deficit, these bonds are sold in financial markets. The Federal Reserve can buy these bonds using money it creates out of thin air. This action increases the money supply in the economy, providing the government with the funds it needs while simultaneously injecting new money into the economy.

Although this approach can offer short-term relief and stimulate economic activity, it also presents long-term risks like inflation if the increase in money supply significantly outpaces economic growth.

This process is why you’re seeing the stock market, gold, and Bitcoin hitting new all-time highs while your grocery bill skyrockets. 

Investing in hard assets is the only way to preserve your purchasing power in these inflationary times. And given the fact that this Bitcoin bull market is still in its early stages, there’s a lot of profit potential left in the space. 

See what I’m buying now. 

Keep coming back,

Chris Curl
Editor, Daily Profit Cycle