Get ready for fiat currencies to halve their purchasing power; inflation is coming. Buy real estate just outside major cities.

The Balancing Act

Currencies exist in balance with the real economy. If the economy grows, then the supply of currency must grow by an equal amount for the purchasing power of that currency to remain constant. In contrast, if the currency supply does not grow, then currency becomes rarer than goods and services; the same dollar buys more stuff. That’s deflation. And, if the currency supply grows rapidly, the same dollar buys less. Inflation.

Cryptocurrencies are a gold rush. New currency is being ‘minted’, and it’s value relative to other currencies is rising. At the moment, standard currencies dwarf crypto — there are $90 trillion in bank accounts and vaults, compared to Bitcoin’s $300 billion value. Yet, a few more doublings of cryptocurrency valuations would constitute an additional 1% to the world’s supply of currency. That would devalue all existing currencies by 1%; everyone inflates a little. The same thing happened to anyone who was holding gold reserves when a gold rush hit; their holdings diminished in value.

Because cryptocurrencies’ behavior is superior to fiat, they could very easily grow to dwarf national currencies. Especially in developing nations which experience periodic hyperinflation, crypto promises stable pricing. Many nations may only need national currency when collecting taxes. As a superior means for retaining value, crypto will naturally absorb the majority of currency holdings, while national currencies act as hedges and tax payments. Water flows downhill.

Who Pays for All This?

Anyone who made loans or holds currency reserves is hurt by inflation. If dollars buy half as much stuff, dollar reserves lost half their value. Suddenly, a mortgage is a lot easier to pay, because dollars are abundant and cheap compared to goods and services. The person receiving those mortgage payments would profit half as much. So, banks will suffer. :)

The banks’ losses will be the gains for crypto-investors; this constitutes a massive wealth transfer. Meanwhile, most people will see rising prices, property values, and hopefully, wages. The economy will operate the same, just with more dollars on every price tag. Oh, and there will be some savings injected into the economy, because the international flow of money is not hobbled by banks’ fees. The ‘load’ incurred upon the economy by banks is lifted, keeping a few more dollars in everybody’s pockets!

If you expect high inflation, it’s also good to buy assets on credit. Paying 20% down on a piece of land that costs $100k requires $20k upfront, and the rest is mortgage. When inflation hits, dollars are abundant, so it is easier for you to make mortgage payments. If dollars are suddenly worth half, your property’s dollar value would double to $200k, though you only have $80k left on your mortgage. Your $20k investment just became $120k, and considering that those $120k buy only half as much, you tripled your investment! So, the banks will lose their fees, and their currency reserves and debts will devalue, already signs of their doom — yet an expectation for inflation could lead to an overloading of debt. As soon as investors realize that crypto could halve the dollar’s purchasing power, they’ll all want extra mortgages! The banks that sign those mortgages would be exposing themselves to even greater losses, when inflation hits.

ExUrbia

Considering that autonomous vehicles will increase our comfort during long commutes, more people will be moving to the hinterlands of major cities. Not the Levittown ticky-tacky with a shopping plaza; these will be acres of community gardens and parks, most retail accomplished by Amazon, clusters of modular tiny homes encircling community centers. When crypto market caps reach the multi-trillion dollar level, buy acres.

Written by

Easily distracted mathematician

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