FEBRUARY 5
The Promise Behind the Note
What Happens When Nothing Limits Money?
The Signal
When money is backed only by trust, there is little to stop more of it being created.
The Reading
Think back to 2020. The COVID-19 pandemic. Almost overnight, governments around the world announced enormous spending programs. Central banks responded with extraordinary monetary measures, expanding the money supply and financial support on a scale few people had ever witnessed. Trillions of new dollars, pounds, euros and other currencies entered the global financial system in a remarkably short period. In many countries, the amount of money in the economy grew faster than it had for decades.
Have you ever stopped to ask where all that money came from? If every dollar still had to be exchanged for a fixed amount of gold, creating trillions of new dollars would not have been possible without first obtaining vastly more gold. But after money was no longer redeemable for gold, that physical limit disappeared. Modern fiat money depends on confidence in the institutions that issue and manage it rather than on redemption for a scarce asset.
The consequences soon became part of everyday life. Groceries became more expensive. Fuel became more expensive. Electricity, insurance, rent and housing all became more expensive. For millions of families, the same income bought less than it had only a few years earlier.
Inflation is not just a number reported on the evening news. It is the gradual loss of your purchasing power. There is one guaranteed promise behind the note. Governments will continue to create money out of thin air.
First Principles
Money that has no physical limit can be expanded more easily.
Creating more money without a matching increase in goods and services tends to reduce the purchasing power of each unit.
The cost of inflation is ultimately paid by the people who hold and earn the currency.
Today’s Challenge
Imagine you worked for twenty years to save enough money for your family’s future. Then, without asking your permission, someone quietly reduced what those savings could buy.
You never spent the money. You never lost your job. You never made a bad investment. Yet your savings now buy less food, less fuel, less housing and less of almost everything else.
If someone can reduce the purchasing power of your life’s work simply by creating more money, who is really protecting your savings?
Tomorrow’s Signal
The Problem With Unlimited Money