Since March of 2020, the S&P 500 is up over 2,000 points sitting at 4,454 & the NASDAQ Composite is up ~10,000 points sitting at 15,080. Record highs have been a norm recently & investors are making a boatload of money, despite a near global shutdown due to the COVID-19 pandemic in 2020. Everything is sunshine & rainbows or should I say green 🤑...right?
With a pandemic that bankrupted millions of businesses, and put millions out of a job, the US Government’s only way to save “the economy” was to turn on the good old money printer. Over the past year and a half, the U.S. Government has increased its spending far beyond what taxation can finance. In 2020 alone, the U.S. government spent over $3 Trillion more than what it brought in, twice its deficit during even the Great Financial Crisis of 2008. Because of this deficit spending, the U.S. government has increased the circulation of total U.S. dollars by over 40%.
Money supply refers to the amount of cash or currency circulating in an economy. Take a look at the increase in our money supply from 2020-2021, especially M1.
*M1 includes money in circulation plus checking deposits. M2 includes M1 and savings deposits and certain money market funds.*
M1 money supply is important because it is the most liquid form of money used in everyday purchases and thus a predominant factor in causing inflation. Due to this massive increase in the U.S. money supply, we are seeing historic rates of inflation as more dollars chase the same amount of goods. An increase in the money supply reduces the value of a currency's purchasing power which means companies increase their prices of goods and services for the same amount of “value”. Cars, homes, gas, transportation, groceries & even your beloved Chipotle orders have significantly increased in price this past year. Losing the value of your purchasing power means that the money sitting in your bank account is also losing its value.
Take a look at the Consumer Inflation chart below. The U.S. Government’s reported inflation rates are drawn in red & the “real” inflation rates, calculated using the 1980 formula for measuring CPI, are drawn in blue. In 1980, the U.S. changed the way they measured inflation in our economy in order to diminish the perceived effects of inflation and spend less on inflation pegged expenditures such as Social Security. While the U.S. Government says our inflation rate is currently ~5%, the alternate CPI metrics have inflation of around ~13%. With inflation this high, the middle and lower class will continue to be squeezed as prices go up but relative wages stagnate. The last time inflation rates were this high, the financial crisis of 2008 followed.
In my opinion, we are currently living in an “everything bubble”. The red will eventually come and the bubble will pop. Protecting yourself from runaway inflation, inept government, or a market crash is essential for your financial freedom. Bitcoin fixes this. Next, I will explain Bitcoin & why it is the best asset to wed during this time.
The Red Wedding.
-MELINK
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