In as much as we want to believe that the government and monetary policies are there to serve us, I am more than worried that is not the case, but probably the opposite. Why would you have to protect yourself from the same government that is mandated to protect you?
Monetary Policies Create Inequality
The Federal Reserve (FED) “sets U.S. monetary policy in accordance with its mandate from Congress: to promote maximum employment, stable prices, and moderate long term interest rates in the U.S. economy”. In other words, promote economic growth and social equality. Other Central Banks around the world, like the European Central Bank (ECB) or the Bank of Japan (BOJ) have very similar duties.
Having the above in consideration, there is no doubt that the central banks have completely failed in their task. Not only the prices are very far from being stable, but the employment and inequality are getting worse and worse as the time goes by.
It is difficult to support the idea that governments and central banks have ever done a good job in these matters. The most flagrant example is probably what President Richard Nixon did in 1971. He cancelled the convertibility of the US Dollar to gold. The gold standard was gone, and from that point inflation, debt and social inequality started to spike.
Politicians tend to be irresponsible because their main task is to win the next elections. They use populism to play with your feelings and buy your vote. That’s why governments usually have horrible fiscal policies and incur in crazy debts. At the time of writing this article the US total national debt is over $27 trillion!!!!
My question is why do we allow them to do it? I think they take advantage of most of the people not having any financial knowledge, and they want you to believe in the “free lunch”. It’s not free! Someone has to pay for it, and make a guess… Exactly, you pay for it! About half of your salary is taken by the government in taxes. The governments don’t produce anything, they just redistribute wealth. How they do it is a different story.
Who Takes All The Benefits?
Surprise, surprise! The same people as always. You may have heard that the world richest (middle class not included in case you doubt it) make up about 1% of the population, while they own 44% of the world’s wealth. But does it strike you how such a tiny minority has amassed so much power over the majority?
The current financial system was designed by the elites with one purpose, to preserve and increase their own wealth, obviously not yours. They made it so complicated to be sure that almost nobody could notice how big the scam is. Henry Ford once said that “it is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning”.
Monetary policies usually make the rich richer and the poor poorer. Whenever a financial crisis come, banks and big corporations are safe, because they know they are going to be bailed out if needed, not matter how irresponsible they were or how many business mistakes they made along the way. Who is paying those bailouts? Exactly! You with your taxes.
But unfortunately this is not all. Because of monetary policies and money printing (let’s say that there is never enough money for a “good” government and its deficit expenditures), inflation lowers your purchasing power year after year. Actually, US Dollar has lost 96% of its purchasing power since 1913. Do you know what happened in that year? The FED was created.
Since then, the ones close to the FED are the main beneficiaries of monetary policies. This is known as Cantillon Effect. Heike Lehner expressed it very well in his article The Cantillon Effect and Populism published by the Austrian Economics Center, “in case of a monetary expansion, the ones who profit from it are the ones who are close to the money. “Close to the money” in this case means everyone who can access the money right at the beginning, i.e. big companies, banks, etc. They get loans and make investments. Prices then start to rise even though the rest of the population has not received any of the new money yet. This part of the population usually is not the one with too much money. Nonetheless, they have to pay the higher prices even though they have not profited from the increase in money at all. And they will never profit from it in the same way as the ones who received the money first. The result is a redistribution from the poor to the rich”.
Financial education is essential to our financial freedom. However, school systems do not offer this form of education. Pure coincidence…? Probably not.
And by the way, don’t let them make you believe that the coronavirus is the cause of this financial crisis. The economy was still set to collapse way before it. The stock market bubble had been and continues at its all-time high, social security was already broke, social polarization and unrest were increasing during the last years. All indicators were showing a very bad situation. This means the 2020 financial collapse was set to happen sooner or later. The virus was only a very convenient pin to the bubble.
Again, the policies implemented by governments to save us from this crisis are not very effective, to be polite. But don’t worry, if these measures don’t work, they will double them. Oh yeah!
Brace! The worst part of this crisis is still to come!
How to Navigate the Storm
From everything we have discussed above, you can tell that you cannot rely on the government to protect you. You have to be responsible to protect and educate yourself. Financial education has never been as vital as it is today. This is particularly the case because our school system does not offer this form of education. You should set yourself a goal to learn how to grow and preserve your wealth, without being hurt by the government, market, or monetary policies.
Learn about the difference between currencies and real money. Gold and silver have been considered money for the last 5,000 years. Unlike fiat currency, which devalues due to inflation, real money keeps its purchasing power through the years.
Get familiar with concepts like Decentralized Finance (DeFi) and blockchain technology. DeFi is a peer-to-peer financial system operating on cryptocurrency blockchains, most commonly Bitcoin and Ethereum. From the name, this financial world is decentralized, meaning it is outside the centralized financial system run by governments and central banks.
DeFi protocols are proven to be effective, and this has been followed by many people accepting these cryptocurrencies as a reliable and safe store of wealth. Bitcoin in particular is viewed as the digital gold. It has been designed to achieve absolute scarcity. This key characteristic by definition makes it a hedge against inflation.
Central banks operate in a centralized financial planning protocol, which is the complete opposite of DeFi. The financial planners tend to manipulate prices and the market rules of demand and supply, which creates bubbles. While we would love to call ourselves a capitalist free market, we are intrinsically a planned economy.
DeFi introduces the concept of individual participation, free market and resistance against censorship. The fact that cryptocurrencies are decentralized means that the government and central banks cannot control its demand and supply using the current monetary and fiscal policies. Central banks don’t like Bitcoin because they can’t manipulate it, that’s why we love it!
Our tax rates are exorbitantly high, and the monetary policies imposed by the governments do not work in our favor. For this reason, you need to save yourself from the dungeon by seeking self-education on financial literacy.
You should also consider stepping out of the system by storing part of your wealth in Bitcoin and precious metals, such as gold and silver. Become a smart, responsible, and educated person. Don’t let this crisis get you unprepared. Let’s all peacefully fight inequality!