Too Broke to Fix

Let me be clear. This is not a post that I want to be writing. Under normal circumstances I would be doing anything else but writing this on a Friday night, but alas the definition of normal is being rewritten by our own experience. That statement, in it of itself, is the solution. So what is the issue? Something doesn’t seem right. Something out there isn’t just so. Your gut instinct is sending off alarms bells that something is off. Your mental acuity is on edge, you’re hustling, you’re “playing by the rules.” You held up your end of the deal. Yet, you can’t get ahead. Why? Because, whether it be by mal-intent or incompetence, the incentive structure of our society was designed this way. Our societal incentive structure on a global level is, by design, meant to keep you in a state of perpetual consumption and a constant need to forfeit your life energy. How you may ask? By eroding your purchasing power. You give up your time. You earn income. You pay your taxes. Your taxes pay for things that we can all benefit from. Fire protection, roads, basic health care, to name a few. What if I told you that there is another tax being levied against you without your consent? What if I told you that tax is inflation? You work hard to balance your budget and get ahead. Your business works hard to balance its budget and remain profitable. If you didn’t you would be bankrupt. Our government does not carry the same level of discipline. Our government, who we elect, has a consistent track record of spending more money than it brings in. This is a problem. I recall actively writing about this 10 years ago (See link). Without getting too thick in the weeds, know this; inflation occurs when the demand for dollars that don’t exist come into existence to satisfy that demand. Think of it like your credit card. You may not have the money now but you still want what the money can buy, so you borrow from the future to satisfy the present. The problem however is that the bill eventually comes due. If you’re a person or business to get out of this situation there are several options: * Cut back spending to free up resources to pay the bill down. * Increase income to acquire more resources to pay the bill down. * Refinance and kick the can down the road, delaying points 1 & 2. * Declare bankruptcy. If you’re the government you have a similar 4 options plus a 5th. * Cut back spending on social programs. * Increase taxes. * Refinance and kick the can down the road, delaying points 1 & 2. * Declare bankruptcy. * Print the debt away through inflation. If you’re the government points 1 and 2 are political career enders; good luck getting (re)elected on platform of austerity or tax increases. Even a 100% tax rate on global GDP (a measure of financial output) for 3 years in a row won’t cover the current debt obligations that exist globally ($281 Trillion USD of debt / $76 Trillion USD of GDP = 3.7 years ). Option 3 of refinancing is what had been going on for decades, taking on new debts to pay off old debts. This is comparable to taking one credit card balance to pay off another. This only delays the inevitable and doesn’t address the spending problem. Option 4 to declare bankruptcy. That will destroy the economy as no one will trust the country’s economic activity resulting in societal disparity that would dwarf the Great Depression of the 1930s on nothing more than magnitude of the debt alone. Option 5 to print the debt away though inflation. It is the short term solution and is what our governments are electing to do right now, globally. Here are the consequences of inflating the debt away: * The money you earned by exchanging your time loses store of value. At a conservative 2% rate of inflation $100 earned today will lose half of it’s purchasing power in 34 years. At the latest inflation figures (~5%) the purchasing power loses half its value in 14 years. That is a 20 year jump! * Growing wealth inequality. When inflationary pressures arise those who hold assets benefit by seeing the price of their assets increase. Those who do not hold assets fall further behind. The housing crisis in Canada is a stark example of this in action. Left unchecked growing wealth inequality will lead or morph evolution into revolution. This is stark stuff, and not enough of us our talking about it. Real talk; and I hope I am wrong about this, but the mathematics of our current lack of fiscal discipline will lead to climbing inflation and a resulting wealth inequality; globally. As populations continue to feel disenfranchised this only provides increasing opportunity for more radical leadership to emerge into the spotlight and increased conflicts for natural resources will climb. Out of desperation for basic survival people will follow blind and dangerous leaders for some semblance of hope in the aftermath of a system that failed them. That is the issue; when enough people understand that the social contract they agreed to is broken evolution turns to revolution. If left unchecked a financial wipe out may become the defining feature of the 2020s. So, how do we get out of it? Fortunately we have a window of opportunity. Governments will be reluctant to give up their habits, so we need option 6, which is simply to opt out of how we were told to do things. Here are ideas I am personally using as well as exploring for future consideration: * Protect your purchasing power using an non-confiscatable asset to store long term value such as Bitcoin. Physical gold and silver are also considered alternatives though there is a risk that these are being demonetized by Bitcoin at an increasing rate. * See where you can acquire affordable land and learn how to build even basic shelter on it. * If you can, consider becoming a global citizen by having multiple passports. This spreads your life risk between nations. * Learn something in the STEM fields: science, engineering, technology or mathematics. These skills have a demonstrable demand throughout history. * Learn how to grow and cook your own food. * Learn how to engage in meaningful dialogue between those that disagree with you. Only by understanding and addressing each others fears can we make any meaningful progress addressing common ground concerns. Restoring the social contract is imperative. It is a matter of our collective survival. If you find yourself at the increasing mercy of decisions you have no influence over I encourage you to explore and find your combination of strategies to opt out or at least reduce dependency on that existing system. No one said that you have to follow the path defined by others in society. What you do have however is a moral obligation to be your best self by being accountable to yourself while ensuring and helping up as many people as you can along your journey. Until next time; HOD’L on. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit bitsandsats.substack.com