We keep seeing the rich get richer and the poor get poorer.
This is a feature of the system, not a bug.
Time for a thread 👇🏽👇🏽👇🏽
This is a feature of the system, not a bug.
Time for a thread 👇🏽👇🏽👇🏽
1) The legacy financial system is built on top of a base unit of account — the US dollar.
The monetary policy governing the US dollar revolves around a single idea — inflation drives economic activity.
The monetary policy governing the US dollar revolves around a single idea — inflation drives economic activity.
2) Inflation is defined as “a general increase in prices and fall in the purchasing value of money.”
The current view is that if consumers know their dollars will be less valuable in the future, they will be financially incentivized to spend money today.
The current view is that if consumers know their dollars will be less valuable in the future, they will be financially incentivized to spend money today.
3) The inflationary nature of the US dollar encourages a culture of consumption.
Don’t hold your dollars. You’ll need more in the future to buy the same product or service.
Spend! Spend! Spend!
Don’t hold your dollars. You’ll need more in the future to buy the same product or service.
Spend! Spend! Spend!
4) But does everyone actually know that their dollars are going to be worth less in the future?
Absolutely not.
Absolutely not.
5) Approximately 45% of Americans own no stocks or investment assets.
Nearly 50% of Americans can’t come up with $400 for an emergency payment.
These people historically live paycheck-to-paycheck and hold 100% of their wealth in US dollars.
Nearly 50% of Americans can’t come up with $400 for an emergency payment.
These people historically live paycheck-to-paycheck and hold 100% of their wealth in US dollars.
6) This bottom half of the population constantly has their wealth stolen from them.
No one is seizing their dollars.
Instead, the purchasing power of the bottom 50%’s wealth continues to be eroded.
No one is seizing their dollars.
Instead, the purchasing power of the bottom 50%’s wealth continues to be eroded.
7) Let’s look at someone who gets paid $10/hour and has a few hundred dollars in savings.
They hold no investable assets and barely make enough money to pay their bills.
They hold no investable assets and barely make enough money to pay their bills.
8) Year after year, the individual gets paid $10/hour.
They believe they are being paid the same amount, but actually they’re being paid less and less on a purchasing power basis.
They don’t have an inflation-adjusted wage contract.
They believe they are being paid the same amount, but actually they’re being paid less and less on a purchasing power basis.
They don’t have an inflation-adjusted wage contract.
9) The few hundred dollars they have saved appears to stay at a constant amount in their bank account too.
But that money is losing purchasing power every year also.
Not only is the person earning less each year, but they’re losing their savings slowly too.
But that money is losing purchasing power every year also.
Not only is the person earning less each year, but they’re losing their savings slowly too.
10) This structural erosion of a person’s wealth is a feature of the system, not a bug.
When academics claim inflation drives economic growth, they forget to mention that the poorest of our population foot the bill.
When academics claim inflation drives economic growth, they forget to mention that the poorest of our population foot the bill.
11) Think this is bad?
Wait till you understand that each socioeconomic class experiences a different rate of inflation.
The poorer you are, the higher inflation you deal with.
If official numbers claim 2% inflation, the bottom 20-40% of Americans may experience 6-10%.
Wait till you understand that each socioeconomic class experiences a different rate of inflation.
The poorer you are, the higher inflation you deal with.
If official numbers claim 2% inflation, the bottom 20-40% of Americans may experience 6-10%.
12) The deck is stacked against the bottom 50% of Americans.
Inflation ensures they are paid less each year, that their savings will be devalued, and that they’ll consume the most inflationary goods.
The system steals the wealth of those that have none.
Inflation ensures they are paid less each year, that their savings will be devalued, and that they’ll consume the most inflationary goods.
The system steals the wealth of those that have none.
13) So why is the inflationary system encouraged if it hurts 50% of the population?
Because it makes rich people richer, duh!
Because it makes rich people richer, duh!
14) Inflation means it takes more dollars to buy the same goods.
Here is the stock market priced in dollars vs priced in gold.
There is a strong argument that the stock market has not increased in value since 2002, but rather the dollar has been devalued.
Here is the stock market priced in dollars vs priced in gold.
There is a strong argument that the stock market has not increased in value since 2002, but rather the dollar has been devalued.
15) Rich people love inflation.
They know that their wealth will increase significantly if they move their dollars into real assets.
Dollars go down in value. Asset prices go up.
They know that their wealth will increase significantly if they move their dollars into real assets.
Dollars go down in value. Asset prices go up.
16) In the US dollar system, investors are rewarded and savers are punished.
17) So what can we do about this problem?
I don’t think the system is going to change unfortunately.
The only solution is to get more people educated about how money and the economic system works.
I don’t think the system is going to change unfortunately.
The only solution is to get more people educated about how money and the economic system works.
18) Financial education is the great equalizer.
Those that are educated benefit from inflation and those that aren’t educated get decimated.
We have to drastically increase the percentage of Americans who are financially literate.
Those that are educated benefit from inflation and those that aren’t educated get decimated.
We have to drastically increase the percentage of Americans who are financially literate.
19) Never forget the 4 rules of personal finance:
1. Spend less than you make
2 Have multiple streams of income
3. Invest, don’t save
4. Be patient and disciplined
Easy to say, hard to execute.
1. Spend less than you make
2 Have multiple streams of income
3. Invest, don’t save
4. Be patient and disciplined
Easy to say, hard to execute.
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