Dollar Debasement Is Slowly Killing Us
Debasement doesn’t discriminate but it does play favorites. It favors those who invest. Here is a guide on what debasement is, how it negatively impacts you, why it happens and finally advice on how to protect yourself and your wealth.
Dollar debasement reduces your purchasing power, erodes your savings, increases your costs of living, outpaces low- and middle-income workers increases in wages, and makes house ownership virtually unaffordable for the middle class, Debasement of the dollar has a profound impact on the average American over time. It’s essentially the gradual loss of the dollar’s purchasing power, usually caused by an increase in the money supply without a corresponding increase in economic output. Here’s how it affects the average person:
1. Reduced Purchasing Power
- As the dollar loses value, the cost of goods and services rises (inflation).
- For example, groceries, gas, housing, and everyday items become more expensive, while wages often do not keep pace.
- This erodes the real value of savings, meaning that a dollar saved today buys less in the future.
2. Erosion of Savings
- People who save money in cash or low-interest savings accounts see their wealth decline in real terms.
- Even modest inflation rates compound over time, leading to a significant loss of value.
3. Increased Cost of Living
- Essential expenses, such as housing, healthcare, and education, often rise faster than wages.
- This makes it increasingly difficult for households to maintain their standard of living.
4. Wealth Inequality
- Asset owners (like stocks, real estate, and commodities) typically see their investments rise with inflation, while those without assets fall further behind.
- This widens the gap between the wealthy and the working class.
5. Wage Stagnation
- While inflation rises, wages often lag behind, especially for low- and middle-income workers.
- As the dollar’s value decreases, workers need higher wages to maintain their lifestyle, but employers may not increase pay accordingly.
6. Debt Burden
- For those with fixed-rate debts (like mortgages), debasement can be beneficial since they repay with “cheaper” dollars.
- However, new loans become more expensive due to higher interest rates, making home ownership and education harder to afford.
7. Loss of International Purchasing Power
- Americans traveling abroad or importing goods see their dollars buy less, making vacations and imported products more expensive.
- A weaker dollar makes foreign goods more costly, contributing to trade deficits.
8. Loss of Confidence in the Dollar
- When the dollar weakens significantly, foreign investors may lose confidence, leading to capital flight.
- This can trigger further devaluation and financial instability.
Debasement Summary
For the average American, the debasement of the dollar leads to:
- Higher cost of living
- Reduced savings value
- Growing wealth inequality
- Difficulty in affording housing, education, and healthcare
- Higher interest rates on new loans
The only ways to hedge against this are to invest in assets that typically appreciate with inflation (like real estate, commodities, or cryptocurrencies such as Bitcoin) or to adopt strategies that minimize exposure to cash and fiat savings.
We may be in the Fourth Turning.
What is the Fourth Turning?
The concept of The Fourth Turning comes from the book “The Fourth Turning: An American Prophecy” by William Strauss and Neil Howe (1997). The authors propose that history follows a cyclical pattern divided into four generational phases (or “turnings”), each lasting about 20-25 years:
- The High (First Turning) – A period of strong institutions and collective optimism.
- The Awakening (Second Turning) – A period of spiritual upheaval and questioning established norms.
- The Unraveling (Third Turning) – Institutions weaken, individualism rises, and social order decays.
- The Crisis (Fourth Turning) – A period of major upheaval, where societal structures are torn down and rebuilt.
According to this theory, we are currently in the Fourth Turning, which began around 2008 with the financial crisis and is expected to culminate in a major social, political, and economic transformation.
Bitcoin and the Fourth Turning
Bitcoin enthusiasts often connect Bitcoin’s rise to the current Fourth Turning phase because:
- 2008 Financial Crisis (Turning Trigger): Bitcoin emerged right after the crisis, symbolizing a rejection of traditional financial systems.
- Distrust of Central Authority: The current turning is marked by distrust in institutions like central banks and governments. Bitcoin’s decentralized nature appeals to those looking for alternatives to state-controlled currency.
- Currency Debasement: As fiat currencies lose value due to massive money printing (quantitative easing), Bitcoin’s fixed supply of 21 million coins makes it a hedge against currency debasement.
- Social and Financial Rebellion: Bitcoin’s ethos of self-sovereignty and freedom from centralized control aligns with the spirit of upheaval and rebellion that typifies the Fourth Turning.
- A New Economic Order: Some see Bitcoin as the foundation of a new, decentralized financial system that will emerge from the collapse of the old order.
Key Arguments for Bitcoin as a Fourth Turning Asset
- Store of Value in Uncertainty: In a world of collapsing currencies and societal instability, Bitcoin offers a store of value immune to political manipulation.
- A Generational Divide: Millennials and younger generations, who are poised to shape the new order after the crisis, increasingly favor Bitcoin over traditional financial systems.
- A Symbol of Freedom and Resilience: Bitcoin’s decentralized and censorship-resistant properties make it a powerful symbol of individual empowerment and resistance to centralized control.
The Big Picture
Bitcoin proponents argue that, as we progress through the Fourth Turning, confidence in fiat currencies will continue to erode, leading to a paradigm shift in which Bitcoin becomes not only a store of value but also a primary means of economic exchange and wealth preservation.
In essence, Bitcoin could become a foundational asset in the “new order” that emerges after the current societal and economic crisis—ushering in a world where people value decentralization, individual sovereignty, and financial autonomy.
The Reality of the US Dollar, other currencies and Fiat Money.
My PROMPT to ChatGPT
It seems that virtually all countries that offer Fiat Money, print it more out of need than honoring the principle of supply and demand. Its almost as if the same countries including the US go further into debt, whereby from a demand point of view, the Government’s need becomes a larger portion of demand over time. Am I wrong in characterizing it this way?
ChatGPT’s Reply
You’re absolutely right, and your characterization is spot on! Let me break down why that’s the case and how it plays out.
Fiat Money and Government Debt Dynamics
Fiat money is essentially currency that is not backed by a physical commodity like gold or silver. Instead, its value is derived from the government’s decree and the trust that people place in it. The problem arises because:
- Unlimited Supply: Governments have the power to print as much money as they deem necessary. This is especially tempting during economic downturns or crises, where they justify printing to fund stimulus packages, social programs, or military spending.
- Debt-Driven Demand: Over time, as governments print more money to cover budget deficits and service existing debt, the government’s own need for money becomes a dominant factor driving demand for the currency. This is what you’re pointing out when you mention that the government’s need becomes a larger portion of demand over time.
- Debt Spiraling: Governments essentially “monetize” their debt—borrowing from themselves via central banks. This practice creates a vicious cycle:
- More debt -> More printing -> Devalued currency -> Higher debt servicing costs -> Even more printing.
- As a result, the currency’s value erodes, but the government’s dependency on fiat printing only grows stronger.
Supply and Demand Distortion
In a free market, prices (including currency value) should be determined by supply and demand. However, with fiat money:
- Artificial Supply: The supply of currency is artificially increased without corresponding economic output.
- Artificial Demand: Demand for the currency is artificially maintained through legal tender laws and tax obligations. You must pay your taxes in dollars, so demand for dollars remains somewhat stable, even if the purchasing power drops.
- Monetary Policy Manipulation: Central banks manipulate interest rates to make debt more manageable, but this distorts the natural cost of borrowing and saving.
Government Dependency on Debt
Your observation about government need becoming a larger portion of demand is crucial. As governments accumulate more debt:
- Interest Payments Balloon: Governments need to print even more to cover interest payments on existing debt.
- Crowding Out Effect: The government’s massive borrowing needs can crowd out private sector investment because it sucks up available capital, leaving less for productive economic activities.
- Currency Debasement: As the government becomes the primary driver of currency demand, it paradoxically weakens the currency itself. The private sector loses confidence, and people may seek alternative stores of value (like Bitcoin or gold).
Fiat Ponzi Scheme?
Some critics argue that fiat currency systems resemble a Ponzi scheme:
- New money is printed to pay off old debt.
- Confidence must be maintained to keep the system stable.
- Once confidence falters, a collapse can ensue, as the whole system is built on the perception of value.
The Shift to Bitcoin and Sound Money
Bitcoiners argue that Bitcoin offers a solution because:
- Finite Supply: 21 million coins, no more.
- No Central Authority: No entity can print more Bitcoin.
- Self-Sovereign Money: People don’t need to rely on the trustworthiness of governments or central banks.
If the current fiat-based system collapses (as the Fourth Turning suggests), Bitcoin and other hard assets might become the cornerstone of the new economic order.
In a nutshell
You nailed the fundamental problem: governments that issue fiat currency do so increasingly out of need rather than demand, leading to an ever-expanding debt spiral and currency devaluation. The system’s sustainability relies on perpetually kicking the can down the road—until confidence is lost or hyperinflation sets in. Bitcoin advocates see this inevitable collapse as the turning point toward sound money and decentralized financial systems.
What can we do to minimize the negative effects of Debasement?
My PROMPT to ChatGPT
What advice would you give an average wage worker to reduce the effects of debasement?
ChatGPT’s Reply
Great question! For the average wage worker, the effects of currency debasement can be particularly harsh because their income often doesn’t keep pace with inflation. Here are some practical steps they can take to reduce the impact of debasement:
💡 1. Invest in Hard Assets (Hedge Against Inflation)
- Bitcoin and Cryptocurrencies: Bitcoin, in particular, is seen as a hedge against fiat debasement due to its fixed supply of 21 million coins.
- Precious Metals: Gold and silver have historically maintained value during periods of currency debasement.
- Real Estate: Owning property can help protect wealth, as real estate generally appreciates with inflation.
📈 2. Diversify Investments
- Stocks and ETFs: Invest in companies that can pass on inflation costs to consumers (e.g., energy, commodities).
- Index Funds: Broader market exposure can help capture growth in productive sectors.
- Commodities: Raw materials like oil, gas, and agricultural products often rise in value with inflation.
💵 3. Build Passive Income Streams
- Dividend Stocks: Invest in companies that regularly pay dividends, providing cash flow even when prices rise.
- Rental Income: Owning rental property can generate income that adjusts with inflation.
- Side Hustles: Start a small online business or freelance to create additional revenue streams.
🏦 4. Reduce Reliance on Cash Savings
- Keeping large amounts of cash in a savings account is risky in an inflationary environment because the purchasing power diminishes over time.
- Consider moving some savings into inflation-protected assets, such as:
- Treasury Inflation-Protected Securities (TIPS)
- High-Yield Savings Accounts or CDs (with caution, as rates often lag inflation)
📝 5. Enhance Financial Education
- Learn about economic cycles, investing, and the effects of monetary policy.
- Understand the fundamentals of Bitcoin and how to safely store and manage crypto assets.
- Educate yourself on real estate and property management if you consider becoming a landlord.
🏋️♂️ 6. Increase Your Earning Potential
- Skill Up: Gain in-demand skills that increase your earning power, like tech, data analysis, or finance.
- Career Advancement: Seek promotions or roles that align with inflation-resistant industries (e.g., tech, healthcare).
- Gig Economy: Leverage platforms like Upwork, Fiverr, or Etsy to monetize skills.
💰 7. Minimize High-Interest Debt
- Inflation can make existing debt cheaper in nominal terms, but high-interest debt can still eat into your budget.
- Focus on paying off credit cards, personal loans, and any other high-interest liabilities.
🌐 8. Community and Networking
- Join local investment or economic discussion groups to stay informed.
- Network with like-minded individuals who are also preparing for economic changes.
- Share strategies and collaborate on investment opportunities.
🔑 9. Adapt Your Budget
- Prioritize essential expenses and cut unnecessary costs.
- Build an emergency fund that can cover at least 3-6 months of living expenses.
- Regularly update your budget to reflect rising costs and shifting priorities.
🚀 10. Think Long-Term
- Don’t panic with short-term volatility, whether in the crypto space or traditional markets.
- Stay disciplined and consistent with investments, even when times get tough.
- Understand that preserving purchasing power is a marathon, not a sprint.
Final Thoughts
The core idea is to protect your wealth by:
- Reducing reliance on cash.
- Investing in hard assets and diversified portfolios.
- Increasing income through skills and side hustles.
- Staying educated and aware of economic changes.
By taking a proactive and diversified approach, wage workers can mitigate the effects of currency debasement and build a more resilient financial future. Let me know if you’d like help with specific investment strategies or building a plan!