For most people, inflation is an inevitability.
Every year, inflation means things are going to get more expensive, and that’s just the way it is.
Or is it?
What if I told you, inflation is now a choice?
What if I told you, it’s now up to you whether things get more expensive, or things get cheaper?
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Most people misunderstand inflation. When I said above, inflation means things get more expensive, you probably just thought, “Yeah, that’s right.”
No it’s not. It’s wrong.
Let’s think back to the schoolyard.
I have a chocolate bar. You have a can of Coke.
I say, wanna trade?
You say, sure!
So we trade. And since a chocolate bar costs $1, and a can of Coke costs $1, most people would consider this a fair trade. One chocolate bar is worth one can of Coke.
Now fast forward ten years. A chocolate bar now costs $3. A can of Coke now costs $3.
Wow, inflation! Things have gotten 3x more expensive!
But this isn’t really true. In the schoolyard, people are still trading one chocolate bar for one can of Coke, and it’s still a fair trade.
Therefore, the value of a can of Coke and the value of bar of chocolate are still unchanged. They both provide the same amount of satisfaction to the owner. They still have exactly the same value in the schoolyard market.
The reason they each cost $3 is not because they’re getting more expensive.
It’s because the currency you are using is getting weaker.
Read that again.
It’s not the items that are changing in value. It’s the currency you’re using.
Here’s how to make this picture a little clearer.
Instead of using dollars, let’s use a different currency. Let’s use Bitcoin.
Ten years ago, a chocolate bar cost 1.1 Bitcoin.
Today, a chocolate bar cost 0.000026 Bitcoin.
If your currency of choice is Bitcoin, and you keep your assets in Bitcoin, you have not experienced any inflation over the last 10 years. The opposite actually – you’ve experienced deflation. Everything on the planet has gotten cheaper for you.
Therefore inflation has nothing to do with the products you’re buying.
It has everything to do with the currency you choose to buy them with.
The reason this sounds odd is because it’s the first time in history people have had this choice. Currency has always been inflationary – the government keeps printing more and more of it, so it gets weaker and weaker. Therefore, you need more of it to buy things. A gallon of milk was 20 cents, a few years later it’s 50 cents, a few years later it’s $2, before you know it your currency is so weak you need $5 or $10 to get the same amount of milk.
The other thing about hyper-inflation? With a fiat currency, it’s inevitable. When it comes to your dollars becoming worth nothing, it’s not a matter of if, but when. Some governments are better at delaying the inevitable than others. In Zimbabwe for example, they did a terrible job, as they did in Venezuela, and Argentina. But even in the USA, even though they’re delaying it better than most, the value of a US dollar is dwindling down to nothing. As you can see in the graph below, the US dollar has already lost 97% of its purchasing power since 1913. And eventually, US dollars will be worth nothing. When, not if.
This is why Bitcoin is powerful.
Before 2011, inflationary currencies were the only currencies available. They had to use a currency that was debased over and over by their government, forced to watch the value of their bank accounts wither over time.
Now that Bitcoin is widely available to the masses, people have the option to keep their wealth in a deflationary currency. A currency that increases in value over time. A currency that cannot be created out of thin air by a government computer on a whim.
For once in our lifetimes, inflation is not an inevitability, it’s a choice.