Are we working for nothing?

It is 2023, we have around 180 currencies in our world -Planet Earth, U.S Dollar $, Euro €, Japanese Yen ¥, Thai Baht ฿, you name it

What is astounding to me is not just the diversity of the currencies

This mere construct that we call “money” and that in each piece of land that we call “countries” there are these different pieces of paper we call “currencies” that allow us to do basically everything to have a functioning society

Literally, at this moment sitting in a cafe place, the cars moving outside, the barista prepping the coffee, to the person repairing the fridge (yes apparently their frozens are at risk, they`d better hurry!)

All of this is possible thanks to the economic machine that is running through the entire world, isn´t that amazing?

I mean there are just so many things to be amazed in this reality we call life that i could go on and on.

For now let`s just boil it down to this topic, as i was saying, this concept of “money” allow us through currency this transfer of value from one person to another but…

What determines value?

In a perfect world people should be compensated “$” based on their value creation for other fellow humans

Then it starts to make sense why a doctor who improves the health of people gets a higher salary than a gardener (who also provides value) but it could be stated then that most humans would value more to have great health than to have a great garden if they were forced to choose one

But the reality of economic forces start to get weird from here…

It is not just value creation what determines who gets the most money.

Think about how many people could learn to be a gardener vs a doctor and also the amount of time it would take each, the amount of specialized training.

That leads me to the conclusion there are more gardeners than doctors, i don`t even need to google it, and that makes the second point…scarcity

Oh my Gold!

I really don`t want to bore you with economic history, so just ponder a very simple question: “why does gold has any value?”

Try not to dismiss it as a silly question, get back to the roots of what you accept today as “true” again, think why as of this moment a gold bar which is not doing anything for anyone, costs around $64,000 usd

That just shows how we provide value by consensus, a huge pool of humans agreeing upon the notion that gold is valuable is the most important one in my opinion

Also gold has a difficulty inherent in it, meaning you need investment in machinery, employees, mining planning, in order to find and extract the gold

Which means it can`t be created out of thin air, unlike our current fiat currencies…

That is why Gold is seen as a store of value and has also a place in the portfolio of investors.Not only that but we can also note that normally Gold and S&P500 index had a pretty negative correlation which is awesome from a portfolio manager perspective

Fiat currency was actually backed by gold! Meaning if you had $1,000 dollars those were not just some pieces of paper it actually meant you had the same value in gold to back that up.That is why gold is seen by many as the true “real” money

That all ended in 1971 the year that marked the end of the gold standard meaning that from that moment on all fiat would be backed by “credit and faith”.

In other words there would be no limit to the amount of money in circulation.If it didn`t need to be backed by physical gold then it would be easy to print any amount at will. That also brings the great question of say if the government prints at will, why would we ever have to pay taxes? 

The government needed money to fund a campaign lets print some, need to support healthcare programs? print some more, need to upgrade military requirements, just print more

What could go wrong right? the money is being used for some great causes not just to enrich some. Right?

Well even if that is partially true, it does not avoid the problem of printing money at will; Inflation

Inflation or …?

It is also very important to note one of the big problems our current economic machine faces and more now than ever… which is inflation

Governments and central banks in multiple countries resourced to a very tricky tactic, which is money printing, do you remember about scarcity creating value?

Then guess what happens when the money you have in your bank account, the dollars you get paid for your job can be created out of thin air, trillions of them, in a second?

Well if you guessed the value of your money goes down, meaning the more they print, the less your money is worth, then you guessed it right and believe me they won`t stop printing, why?

Because there is no way out of this debt spiral

The Magic Card

Just imagine for a moment you have a credit card with no credit limit, it is literally infinite. You grab some of the credit line to buy a new car, you are feeling great so you decide to upgrade your furniture and your watch collection.

Now comes the time to make your payment but you already spend all of your money on other stuff . Oh but wait a minute you just figure you have an infinite credit card so you use some of that to get more money to pay for the previous stuff

Wow this is so easy, you feel comfortable you made your payment, so you go and buy a new house with your credit card

Guess what happens when the next time to pay for the previous furniture, car, watches, house and interest on the previous payment arrives?

It is for instance difficult as human to resist the temptation to print more money if you knew you could just print to repay it

But the bigger threat i believe is that once already done is almost impossible to get the resources to repay the debt so you would be left with no choice but to print more in an infinite loop

40% … Uh oh!

Now you say well that is a good fantasy story but what would even be the problem with the loop? I get to live great!

First, it was a fantasy story for us, but just replace yourself for the government and it goes from being fantasy to explaining in simple terms how money printing works

Second, probably if you had that for yourself it would be unfair for the rest of the people but worst than that is that if you do it to buy a house and print $1 million. ok

But if you print such a huge amount like 40% of all the money in EXISTENCE. Alright then you affect millions of people. Now is not just about you, why? Because by creating so much money out of nowhere you devalue all of the other people’s money

No wait but the government wouldn`t do such a crazy thing right?

Oh, well…