Inflation: Transfer of Wealth from 99% to the 1%
Inflation is taxation without legislation — Milton Friedman
What is inflation?
Inflation is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time.
In layman’s terms, it’s basically like thinking about the cost of a gallon of milk in 1997 was about $5. Today the average cost is about $7.50. That means your paying more for the same thing.
Why is inflation insidious?
Prices of assets increase because there’s more money chasing fewer supply of goods. Corporations experience an increased cost of inputs and they typically pass those costs onto consumers in the form of price increases.
People who don’t own assets, basically the majority of the population living on a salary are forced to pay more for the same thing. The purchasing power of your dollar erodes…
The Average Cost of Living
The government claims inflation is tame. I argue the opposite… The cost of education goes up 6–7% per year. The cost of rent at a minimum goes up 3.2% a year. The price to own a home risen 5–7% on average in the last 10 years. All the while average increase in salary has been 2–3% per year for the last 10 years.
The government has printed trillions of dollars this past couple years. All this money will find itself entering the economy and pushing the prices of things higher and higher.
How do you protect yourself against inflation?
BUY ASSETS! Do NOT hold your money in Cash. Michael Saylor, the CEO of MicroStrategy and Bitcoin enthusiast, claims that the dollar will depreciate up to 15% a year in value for the next 5 years. You need to find a way to protect yourself against the erosion of your purchasing power.
Gold has been considered a good inflation hedge. For thousands of years, humans have used Gold to transact business. It has a predictable limit of supply unlike the fiat currency being printed in the trillions by governments around the world.
Some are calling Bitcoin the ultimate inflation hedge because of its limited supply. We will literally have only 21 million Bitcoin that will ever be produced and at the time of this writing, we have already mined 18 million.
I’d say a 10% investment of your portfolio in Bitcoin or Gold would be an appropriate inflation hedge.
