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Hyperinflation Getting Closer, Bitcoin saved an economy that was getting worse due to the pandemic

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Avatar for icha2205
Written by   185
10 months ago

The Central Bank of America or The Fed is known to pour out a lot of money. This was done to save an economy that was slumped by the pandemic.

But is this really a salvage step or even a move to make fiat money less valuable? Was Bitcoin the right choice when money was no longer valuable?

really Bitcoin is the right choice to save yourself from this "financial disaster"?

In layman's terms, inflation can be defined as a very large amount of money for the same size of goods and services.

For example, in 2012 you bought 200 grams of bread for $ 15, then in 2014 you bought bread of the same size but the price was $ 20. Now this is called inflation.

After inflation, there is another level, namely hyperinflation, which means that the flow of money is almost out of control.

Hyperinflation can be defined as inflation that occurs at a rate of more than 50% in a month. Using the same analogy, we assume that in 2016 the price of one loaf was $ 360.

From this if we look more broadly, wealth denominated in hyperinflationary currencies, the number of goods / services that can be purchased at the end of each month will be halved. Because it takes a lot of money to get some items. For example bread.

The only way to maintain purchasing power in hyperinflation is to have scarce assets that have appreciated relative to the currency.

Some of the causes of inflation are the monetary policy applied. We can see this in 2008 when the debt crisis brought the global economy to the brink of a deflationary depression (the price of goods fell drastically), liquidity (ready-to-use money) was put into the system to offset the devastation caused by the crisis.

By introducing liquidity through the bond market, the Federal Reserve or the US Central Bank could unreasonably increase asset prices and other nominal measured values. This in turn provides the illusion of real growth.

By lowering interest rates, the Fed is essentially giving the business a bigger profit margin. It looks like economic growth, but in reality, it's just a cut in interest rates.

You can clearly see the increase in the value of the US dollar in March, which indicates strong deflation.

However, due to the pandemic, the Fed continued to add liquidity which again made the dollar circulate too much.

This insertion of liquidity weakens the value of the dollar while increasing the value of assets measured in dollars, an example of an asset that is closely related to the dollar is Bitcoin.

Over the last 12 months alone, the Federal Reserve's balance sheet has grown from 4 trillion to 6.7 trillion dollars or more than 41% of the total supply of dollars ever.

This is expected to pick up again with a proposed new stimulus plan worth 1.9 trillion dollars more than all money printing combined in 2020.

During deflation, the value of the dollar increases, along with the decrease in the value of assets. During inflation, the dollar value decreases, as the asset value increases.

Large amounts of liquidity cause asset prices to rise by default, given the definition of more dollar inflation for the same quantity of goods.

Instead of going into the broader economy, money is put into assets. This can be illustrated by the circulation of money.

Money circulation is a measure of how often money changes hands. In the chart below, you can clearly see that when the Fed's balance sheet expansion increases, the M2 Money Stock moves down faster.

This phenomenon has enormous societal implications. This means that the wealth gap increases, as newly created money is put in the hands of the rich and put into assets, never entering the economy of the lower middle class.

Meanwhile, the average person who has a savings account has lower purchasing power. This suggests a paradox that the Fed appears to be printing money for the benefit of society, but quite the opposite.

Ultimately, however, the newly created money is likely to shift to the broader economy over time as the rich sell assets to buy goods / services.

However, these assets are ultimately purchased not for ownership of the asset itself, but in the hope of buying more goods at an appreciation for the asset's value.

Inflation and hyperinflation that are in sight will definitely make people need to look for other alternatives, and what is currently gaining popularity is Bitcoin. Why Bitcoin? Let's examine why.

Being an existing pre-programmed protocol on the internet, the amount of bitcoin supply can be audited at any time, by anyone. This makes it extremely rare. There will only be 21 million bitcoins, with the last coins mined throughout the year

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Avatar for icha2205
Written by   185
10 months ago
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Inflation being new term for non crypto newbies here, but this mode of explanation is admirable

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