Where does the road to worthless end?
Do you know what the RBA did last week?
You won’t believe it. They just went and printed $4bn. They just made it up. Just flicked a button on a computer, and poof – suddenly there was an extra $4bn Aussie dollars in the system.
Just like that.
Amazing right? That they can just go and make up that much money – like $4bn is serious cheese. I don’t think people really get how big a billion is.
But they just went and made it up.
But you know what’s really incredible? It’s not just that they printed $4bn last week. It’s that they printed $4bn the week before that. And the week before that. And the week before that.
In fact, EVERY WEEK THIS YEAR the RBA has just gone and printed $4bn dollars. In some weeks it was more.
To get a sense of just how colossal this money printing spree has been, take a look at the RBA’s balance sheet. (After they print the money, they buy bonds to inject it into the financial system, and the bonds end up on the RBA’s balance sheet. They don’t publish data on “How much money we printed” because… well, I guess they’re shy.)
Anyway, the RBA’s now-bloated balance sheet now looks like this:
Yep, it was about $200 bn pre-Covid. It’s now closing in on a $600bn. That’s a three-fold increase in the money supply little over a year!
And the thing is, the RBA is not alone here. Pretty much every central bank the world over has joined in on the money printing bonanza. Australia’s massive expansion actually looks kinda modest.
So think about what’s going on here. What did we learn in Economics 101? (Or in my case, what should I have learned in Economics 101 if I had bothered to show up to class.)
It’s that when the supply of something increases, it’s price falls. The more abundant it is, the less you can charge for it.
But how do we think about this when it comes to money? We almost always talk about price in terms of dollar values.
So what is the price of money?
Well it’s all relative. If a million dollars buys you a house, then a house buys you a million dollars.
You can measure the price of money against the value of things.
And that’s sort of what the idea with the inflation data is. How much bread can you buy for a dollar? How much money can you buy with a loaf of bread?
So, coming back to our first point, if Economics 101 teaches us that as the supply of something goes up, it’s price goes down this tell us that if the supply of money goes up, then it’s value relative to things goes down.
Money is on the road to becoming more and more worthless.
This is why I’m so bullish on property right now.
But it’s also why I’m so interested in crypto right now.
Bitcoin, for example, has limited supply. The supply can’t be increased. It’s hard-coded in.
That means it can’t be devalued the way that EVERY SINGLE CURRENCY ON EARTH is being devalued right now.
And that means that if it is able to cement itself as a viable currency of transaction (and it’s on the way) then it is destined to just grow and grow in value relative to fiat currencies, as those fiat currencies become more and more worthless.
And given that 2020/21 has seen the most epic storm of money printing ever, is it any wonder that crypto-currencies are booming?