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I never had a great answer.
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The
Rabbit Hole
What’s Happening to the Dollar Under a Fiat Standard?
Most people spend 80,000 hours of their lives earning money. It might be worth 8 minutes learning how that money actually works…
“Fiat” is money that has no intrinsic value and isn't backed by a physical asset like gold or silver. Its value is derived solely from government declaration and public trust. This system emerged when countries, including the U.S., abandoned the gold standard in the 20th century.
In a world where your hard-earned dollars are worth less every year, and the system is designed to benefit the top 1%, one must ask the question: how much trust can you put in the dollar? The global financial system, with the U.S. dollar at its helm, is unraveling, and the mechanisms that once promised security now seem more like a slow-motion heist.
The U.S. dollar—once the gold standard of currencies (literally)—is no longer good enough. It’s a relic of a time when money was tied to actual value, not just the whims of central bankers and politicians. But here we are, stuck with a currency that’s backed by little more than a promise from Uncle Sam. And if history has taught us anything, it’s that promises from governments are about as reliable as a sand castle in a tsunami. The real question is, why are we still playing along in this silly game? Do we even have a choice?
The Dollar Loses Significant Spending Power Over Time
Graphic created by: “ Visual Capitalist ”
Let’s take a stroll down memory lane, shall we? Once upon a time, a dollar could buy you a movie ticket, popcorn, and a soda. Today, that same dollar might get you a side of ranch dressing if you’re lucky. Since the Federal Reserve was created in 1913, the dollar has lost over 96% of its value. That’s right—96%. This isn’t just some abstract figure; it’s a slow bleed that’s been draining our wallets for over a century.
Despite technology continuously making production more efficient, consumer goods keep getting more expensive. You’d think that with advancements driving down the cost of making things, prices would follow suit—but no.
Instead of enjoying cheaper goods, the public is left footing the bill for inflation, which quietly siphons off the benefits of efficiency and concentrates wealth upwards. This concentration of wealth is driven by a system that rewards capital over labor, financial engineering over production, and political influence over fair competition. We are left with a society where technological advancements and increased efficiency, which should benefit everyone, end up enriching the few at the expense of the many.
The Impact of Recent Money Printing: Legalized Theft
If you’re wondering why your grocery bill has skyrocketed, look no further than the recent frenzy of money printing by the Fed. The M2 Money Supply represents the total amount of dollars in circulation. In the last five years alone, trillions of dollars have been conjured out of thin air. The U.S. government and Federal Reserve have turned on the printing presses and let them run wild, flooding the market with new dollars. Every new dollar printed dilutes the value of the ones in your pocket. It's like taking wealth from tomorrow’s pockets to pay for today’s problems, leaving the next generation with less, while shouldering the costs of today’s excesses. In 2020 alone, the U.S. grew the money supply by $3.8 Trillion. This represents around 20% of all dollars ever created . . . in a single year. This equates to $120k printed every second of every day in 2020. They call this “stimulus” or “economic support.”
I call it theft.
The Never Ending Debt Cycle: Why do we keep printing money?
The U.S. government runs a budget deficit when its spending exceeds its revenues, so to cover the gap, it borrows money by issuing debt in the form of Treasury bonds, notes, and bills. Investors—ranging from individuals to foreign governments—buy this debt, providing the government with the funds it needs to keep running. However, as the debt piles up, the government’s interest costs on this outstanding debt begin to rise, increasing the burden on the federal budget. This drives up the deficit even further, creating a need to issue more debt just to cover both ongoing spending and the growing interest payments.
As the government issues more debt, the market starts to demand higher interest rates. Investors want better returns to compensate for the increased risk associated with holding more government debt, especially if they perceive higher inflation or potential fiscal instability. To attract these buyers, the government agrees to pay higher interest rates on new debt, which leads to even higher interest costs, perpetuating the vicious cycle.
At some point, the situation escalates to where the government needs to continuously issue debt just to service the existing debt. But here’s the kicker: the Federal Reserve can step in, create new money, and use it to buy this very debt—essentially allowing the government to pay back its loans with money it just created. Because, after all, why not solve a debt problem by conjuring up more money out of thin air?
Your Money Isn’t Safe in the Banks: They Don’t Have It
Here’s a fun fact: When you deposit money in a bank, it doesn’t just sit there waiting for you. Thanks to fractional reserve banking, the bank only keeps a fraction (usually between 3% to 10%) of your deposit on hand, lending out the rest. This system works on the assumption that not everyone will want to withdraw their money at the same time. In essence, the entire banking system is a high-stakes balancing act, reliant on the confidence that people won’t all rush to redeem their deposits simultaneously. But when that confidence wavers—during a crisis, for example—the system teeters on collapse. To make matters worse, every time money is lent out it multiplies that deposit across multiple accounts. When a bank loans out 90% of your deposit to someone else, that money eventually gets deposited into another bank, which then lends out 90% of that deposit, and so on. This creates a chain of double, triple, and quadruple counted money. The same original deposit is now supporting multiple layers of credit in the economy. It’s a financial house of cards where each level relies on the one below to stay intact. While this system can supercharge economic growth during good times, it’s vulnerable to collapsing under its own weight during bad times.
Recognizing the fragility of this system, Central Banks were created to act as the "lender of last resort" during crises. When banks find themselves short on reserves and unable to meet the withdrawal demands of their customers, central banks like the Federal Reserve step in to provide liquidity—essentially printing money or making loans to ensure that banks don't crumble under the pressure. Oh there’s a crisis? Just print more! This backstop is meant to stabilize the financial system and restore confidence, but it also underscores just how delicate the fractional reserve system really is. This is the system we are supposed to trust with our life savings? It’s time to start questioning the idea of keeping your money in a system that’s running on borrowed time—quite literally.
The Future Worth of Your Dollars: What does it look like?
Calculated using: https://www.calculator.net/inflation-calculator.html
If current trends continue, your dollar-based savings in 30, 40, or 50 years will be worth a fraction of what they are today. In the table, we can see what happens to $100,000 over different time periods and inflation rates. Over the last 50 years, the average inflation rate is right around 3.8%. At that rate, your $100k will only be worth a mere $33k in 30 years time. The purchasing power of fiat currencies is set on a slow decline, thanks to continuous inflation and money printing. The future of your wealth depends on the actions you take today.
But Wait, I Also Invest in the S&P 500: Investments vs. Inflation
You’ve been told to invest in the stock market because given enough time, it always goes up, right? Except when it doesn’t—and even when it does, the spending power of those dollars are declining. While the nominal gains in the stock market might look impressive on paper, when you factor in inflation, those gains are actually quite hollow. The truth is, if you’re not beating inflation, you’re not actually making any money. And if you're not investing your hard earned dollars at all, you’re drastically falling behind. You’re just running on a financial treadmill, getting nowhere, while the dollar continues its slow decline. Are you really building wealth, or just keeping up appearances?
A Real World Example: Your 401K
Calculated using: https://www.calculator.net/401k-calculator.html
Let’s imagine you diligently invest in your 401k, contributing regularly over 35 years. You’re optimistic, assuming a solid 10% annual growth in the stock market. At the end of this period, your portfolio grows to a seemingly impressive $7 million. Over the last 50 years the average inflation rate is around 3.8%, and it is safe to assume this number will increase over the next 35 years, so let’s assume 4.5% for this example. Over these 35 years inflation has been quietly eroding the purchasing power of every dollar you've accumulated. By the time you retire, the only real spending power you have left is equal to the contributions you put in—everything the stock market added has been entirely eroded by inflation. So while the nominal amount looks substantial. In terms of what you can actually buy, you’re standing in the same spot you started. I suppose this is better than nothing, you didn’t lose spending power, but is this really what years of hard work and savings should amount to?
Feel free to play around with numbers that make more sense for you and experiment with what what inflation does to your spending power over time.
Fiat, Taxes, and War: The Military Industrial Complex
War is expensive—astronomically so—and without the ability to print money, governments would be constrained by the actual resources they could raise through taxes and bonds. It used to be that nations would rally their citizens in a patriotic effort, urging them to buy bonds and contribute to the war cost, while taxes were hiked to cover the massive costs of conflict. But that was before we left the gold standard and fiat currency became the norm. Now, instead of relying solely on taxes and bonds, governments can simply print money to finance wars. During World War II, the U.S. still relied heavily on war bonds and taxes, but by the time of the Vietnam War and beyond, printing money became an increasingly viable option. Fiat currency has allowed nations to bypass these limits, funding conflicts with money that didn’t exist until it was created out of thin air. If governments had to rely solely on what they could collect from their citizens or borrow, many wars would simply be unaffordable.
It’s not just that fiat currency makes war more affordable—it’s that war itself has become a tool to justify the endless printing of money. The economy, reliant on constant growth, sometimes needs the stimulus that only large-scale government spending can provide. And what better excuse for massive spending than war? War provides that justification, keeping the wheels of the fiat economy spinning, even as it erodes the value of the very money it’s printing. Whether it’s a global conflict, a war on terror, or even a new Cold War, the narrative of external threats keeps the printing presses running and the economy humming, at least on the surface.
Combine this with the military-industrial complex: a powerful alliance of defense contractors, lobbyists, and politicians who profit from perpetual conflict. War is no longer just a matter of national security; it’s a lucrative business. The demand for weapons, technology, and military infrastructure creates a self-sustaining cycle where the need for war justifies the creation of more money, which in turn fuels the next conflict. The profits roll in, and the complex thrives, all while the public foots the bill in ways they may not even realize.
Just because the government isn’t taxing you directly to pay for war doesn’t mean you aren’t paying for it. Every dollar printed to fund military operations devalues the money in your pocket through inflation. It’s a hidden tax—one that erodes your purchasing power and chips away at your savings without you even noticing.
Conclusion: Why should you care? And what can you do about it?
Jack Mallers puts it this way: “Money is a representation of our time and energy in an abstracted form. It reflects what we contribute to society. When a government takes on debt or borrows money, it’s essentially borrowing the populous’ collective time and energy, pulling it from our future. By looking at global debt, you can gauge how much of humanity's future time and energy has been borrowed. And with global debt to GDP over 300%, it means they borrowed a lot of our future time and energy, without our permission, and with no way to pay it back".
Historically, harder forms of money, such as Real Estate, Gold, and Commodities have been used as a hedge against inflation due to their intrinsic value and limited supply. Real estate has been the traditional hedge against inflation, but it comes with baggage: liquidity issues, maintenance costs, and exposure to market bubbles. Remember 2008? Fun times. And gold, despite its reputation as a hedge against inflation, comes with notable drawbacks both as a personal store of value and as a societal form of money.
Enter Bitcoin — a hard money alternative that’s free from the physical constraints of property and isn’t subject to the whims of central banks. Bitcoin offers a new way to preserve wealth without the headaches of dealing with tenants, taxes, or leaky roofs. In the fiat world, your assets are only as secure as the government’s willingness to let you keep them. Bitcoin is not a hedge, it’s a solution to the problems inherent in the fiat system. It’s a way to opt out of a rigged game and into a system that’s transparent, decentralized, and immune to inflation. Bitcoin isn’t just another investment—it’s an exit strategy from a broken financial system. If you’re still holding onto fiat, you’re holding onto a sinking ship. Bitcoin offers a way to preserve your purchasing power, gain financial autonomy, and participate in a new and fairer financial system. And guess what? We’re still early.
Bitcoin Basics
This 3-minute video from TuttleTwins is one of the most concise and easy-to-understand explanations of bitcoin I have come across
Bitcoin Core Concepts
All Prices Fall to the Marginal Cost of Production
In a competitive market, prices will fall to the marginal cost of production over time. This economic principle occurs because producers, in an effort to attract consumers, will lower their prices to the point where they cover only the additional cost of producing one more unit. When a new product or innovation is introduced, it may command a higher price initially due to novelty and limited supply. However, as more producers enter the market and production processes become more efficient, competition increases, driving prices down.
The marginal cost of production includes the costs of raw materials, labor, and other inputs necessary to produce an additional unit. As technology advances and efficiencies improve, these costs often decrease, further lowering the price of the final product. This downward pressure on prices benefits consumers, as it makes goods and services more affordable, while also encouraging producers to innovate and reduce costs to remain competitive.
Scarcity is the Fundamental Starting Point of All Economics
Scarcity drives the need for choices and trade-offs, as selecting one option means forgoing another. The concept of scarcity also underpins the principles of supply and demand, where rare and highly desired items tend to be more valuable. However, in the context of fiat currencies like the dollar, the concept of scarcity is less tangible. The ability to expand the money supply reduces the perception of scarcity and affects the currency's value over time.
In contrast, bitcoin offers an example of true scarcity. Its total supply is capped at 21 million coins, a constraint encoded in its protocol. No additional bitcoin can ever be created beyond this limit. The predictability and immutability of bitcoin's supply schedule allow for a tangible understanding of scarcity, reinforcing its value as a neutral asset.
The Natural State of a Free Market is Deflation
In a free market, increased efficiency and technological advancements should lead to lower prices for goods and services, benefiting consumers by enhancing their purchasing power. However, this natural deflationary trend is often countered by the actions of central banks like the Federal Reserve, which engage in money printing and promote inflation. By increasing the money supply, the Federal Reserve induces inflation, which erodes the value of money over time. This process effectively steals the potential benefits of lower prices from the population. Instead of consumers enjoying the fruits of increased efficiency and productivity, the additional money in circulation leads to higher prices and diminished savings. This forced inflation benefits debtors, including the government, at the expense of savers and wage earners, thereby redistributing wealth and undermining the natural deflationary benefits of a truly free market.
Bitcoin Operates On a Time-chain, Not Just a Block-Chain
You’ll often hear people talk about how bitcoin is a “blockchain” technology. While that is true, bitcoin’s true innovation is in the creation of a time-chain. Unlike other blockchain based cryptocurrencies, which lack a true direction of time, bitcoin provides an immutable record of past, present, and future transactions by way of its Proof of Work consensus mechanism. This mechanism ensures that bitcoin is stamped in time and backed by energy from the physical realm.
Satoshi didn’t stop there. “To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they're generated too fast, the difficulty increases.“ - from the Bitcoin White Paper
This means is that no matter how powerful or efficient mining rigs become, a block on the chain will always take around 10 minutes, on average, to verify. This can never be sped up.
Fiat is Designed to Keep Our Time Preference High
Fiat currency systems are designed in a way that encourages high time preference, meaning people are incentivized to prioritize short-term consumption over long-term savings and investment. Fiat currency systems are often coupled with low interest rates and easy access to credit, further promoting immediate spending over saving. When money is cheap to borrow, individuals and businesses are more likely to take on debt for current consumption rather than build savings for future investments. This behavior supports a cycle of consumption-driven economic growth, however, this comes at the cost of personal financial security and long-term economic health, as individuals are pressured to spend rather than save, invest, and plan for the future.
Bitcoin is the Most Efficient Value Settlement Network
While the digital transfer of a currency like the U.S. Dollar appears instantaneous, the final settlement (the actual transfer of value from one party to another) typically occurs much later and involves extensive clearing and settlement procedures managed by banks and financial institutions.
These processes include reconciling transactions, handling multiple layers of banking systems, and coordinating with various clearinghouses. This can introduce delays and increase costs, as final settlement might take several days to complete, with numerous moving parts involved in ensuring the accuracy and security of the transaction.
In contrast, bitcoin’s time-chain technology facilitates near immediate final settlement. When a bitcoin transaction is confirmed, it is recorded directly on the blockchain, creating an immutable and transparent ledger of all transactions. The decentralized network of nodes and miners ensures that once a transaction is added to a block, it is permanently settled without the need for intermediaries or prolonged settlement periods.
Gold is mined out of the ground. Bitcoin is mined out of time itself.
This is incredibly meaningful, as it removes the possibility of stealing from the future and creating new supply unfairly. Even for politicians and major corporations.
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