If you need more background on the current state of monetary supply happening around the globe check out my previous article about this topic here.
With the passage of the next stimulus coming any day, Let’s look at a breakdown of the funds.
Since March 2020, we have printed 4.507 trillion dollars. This amount of money is beyond comprehension, but let’s attempt to understand it. If we split the COVID-19 stimulus spending into a yearly salary you would be printing 514.5 Million dollars per hour. Sounds like unsustainable spending to me considering America’s GDP has been stagnant and government spending is higher than collected revenue for over a decade.
This has led to a bill of 28 Trillion by our government, which is funded solely by it’s constituents. That equals 84,681 USD per American citizen. here is 3,200 dollars and by the way you now owe only 81,481 USD. Thanks for the reckless spending, guys.
While we let that sink in, the economy hit the highest unemployment rates since the great depression and this was not only in America. Most countries are far above their normal unemployment rates such as UK, Canada, and India. This massive spike in unemployment leads to people trying to recover and save which in turn reduces money velocity.
Money velocity measures people’s willingness to hold cash or how often cash turns over. Higher velocity means people are spending cash on goods and services. Lower velocity means that people are hoarding cash, which usually happens during periods of economic weakness, credit stress, and fear. We are currently at unprecedented levels of inflation and money velocity is slowing down rapidly.
This leads to economic stagnation and rising CPI (consumer price index). In the late 70’s America had a severe CPI increase after removing the US from the gold standard by Nixon which inflated the supply of money. As history seems to repeat itself, these factors contribute to higher inflation which will erode your savings over time. If you didn’t make 40% returns on your investment portfolio in the last year you lost money due to the monetary supply increase. But enough of the doom and gloom, let’s get to the light at the end of the tunnel.
With a family of four receiving 5,600 USD it is time to protect your wealth. There are many different options on this front:
Stocks and commodities are a great place to start, especially in a rapidly inflating supply of USD. The markets will see enormous growth, but these vehicles are still tied to the underlying value of the dollar. When the stagnation of the economy finally catches up, the profit from stocks will still be paid in a government backed currency instead of an asset without government interference. While no plan to raise interest rates are on the docket, the rate hike will cripple profits that are gained over this period of expansion.
Property is also another great investment opportunity as that is a scarce resource. We aren’t creating more land any time soon and people always need a place to live. This is definitely a great investment for long term outlook, especially if looking for rental properties, but property is very illiquid. If needing access to your funds is a priority selling and buying property usually takes upwards of 3 months to finalize.
Precious metals is another option and it has the benefit of no government control over the supply. Gold has been a great store of value since the dawn of civilization and will continue to hold value against global monetary increases. On the other hand, it is no longer the only hedge against inflation. If cryptocurrency was not invented, it would have seen a lot more growth over the last year. While I think it has not reached it’s market potential it has lost it’s luster to the younger generation of investors.
As Warren Buffet always said gold “gets dug out of the ground in Africa… Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
This leaves us with cryptocurrencies. The new wave of young investors are looking at something new and like what they see. It has the potential to eat away at the 9 trillion dollar gold market slowly as well as having an actually limited supply. No entity can fudge the numbers so to speak and that is where the potential lies.
The choice is up to you on which investments you want to follow through on, but if you leave your money in savings you may as well set 40% of it on fire. If there is anything to take away from this article it is invest in something.
While most mainstream investment advisors are finally suggesting allocating 3% of your investment portfolio into cryptocurrencies, there is evidence with gaining popularity of digital assets and incoming destabilization of the dollar, 10% of your investment portfolio is safely within risk and reward potential. If this money is not a dire necessity, spending between 168–560 USD of your stimulus on cryptocurrency can help hedge the upcoming uncertainties of the market. This jumpstart of funds plus my recommended dollar cost averaging investment strategy can help protect from inflation while minimizing risk with a volatile asset.
- Dr. Austin Fortner