There’s a certain principle that Ray Dalio uses to deepen his understanding, and it goes like this:
” Just because something hasn’t happened in my lifetime doesn’t mean it hasn’t happened before “
This principle helps us grasp current situations better because, somewhere on Earth, someone may have already faced similar challenges.
It’s also how knowledge is created and preserved. We don’t need to figure out how to treat a burn or lower blood sugar or even change a lightbulb on our own. The blueprint is already there.
But what happens when the answers aren’t readily available?
“The Biggest Economic Experiment”:
Firstly, let’s grasp the basics.
Government budgets are primarily funded by taxes that citizens are obligated to pay. This budget funds investments in education, healthcare, infrastructure, security, and more.
But what if the tax revenue isn’t enough? What if governments could simply print more money out of thin air to supplement their budgets? It sounds tempting, doesn’t it?
Well, Japan embarked on a significant money-printing spree about 30 years ago, followed by other countries. They disguised this blatant “money printing” with more confusing economic terms like “Quantitative Easing” (QE).
While most economies have resorted to this tactic at some point, the scale has now become alarming.
It’s reached levels measured as Debt-to-GDP ratios, or they’ve printed too much relative to the size of the economy.
The US initiated QE measures after the 2008 Great Financial Crisis, but the money printing persisted for the next 12 years.
Then came COVID-19, and governments responded by printing money on an unprecedented scale to aid struggling businesses.
This intensified the pace of QE, inevitably leading to inflation, especially with interest rates hovering around 0%. Essentially, money is practically free as the cost of borrowing approaches zero.
And it’s not just the US; countries across the globe—Europe, Asia, Latin America, Canada—have followed suit.
What’s next?
As countries’ debts continue to climb and interest rates rise marginally since 2020, they’re compelled to allocate more funds to servicing their debt. This leaves less for other crucial government expenses.
Consider this:
” 60% of the US Budget is allocated to servicing interest on their debt”
This means only 40% remains for other government functions.
It’s nonsensical.
Economies are so indebted that they can’t halt printing money, leading to currency debasement and a soaring cost of living, burdening citizens.
Looking back at history, there’s been no precedent for this level of QE and low-interest-rate environments. There’s no roadmap for solving such a situation because it’s uncharted territory.
Adding to this, we’re witnessing the emergence of new technologies in the form of encrypted currencies, native to digital realms. Bitcoin, for instance, is positioned as an economic-technological currency with the potential to store wealth due to its scarcity and native digital attributes.
Now, investment funds, nations, and individuals are turning to Bitcoin as a lifeline. Understanding its dynamics becomes paramount for reaping its benefits.
It’s essentially a race to accumulate the scarcest “money” humanity has ever encountered.
This economic experiment isn’t just a spectacle; we’re all part of it, directly impacted by its unfolding dynamics.
How?
-We are living through unprecedented times where all governments around the world are creating a higher cost of living by debasing the currency at a rate never been seen before.
While at the same time we have the creation of a scarce and finite digital currency that has the power to store wealth better than any fiat currency, that we also had never seen before.
Both happening at the same time in history.
-That ladies and gentleman could only be described as The Biggest Economic Experiment.
Take care,
Zifush.