Why Holding Cash Makes You Poorer Every Year (and What To Do About It)

Inflation and Fiat Currency - Fiat money's value relies on trust in the issuing government, similar to concert tickets losing value when more are printed without increasing capacity [2][3] - Inflation erodes purchasing power as money supply grows faster than goods and services, though factors like energy shocks and supply chain issues also contribute [4] - Central banks target approximately 2% inflation annually, which results in money losing about 20% of its purchasing power every decade [8] - Since 2000, the US dollar has lost about 47% of its value, while the euro has lost around 44% since 1999 [9] - History indicates that most fiat currencies eventually fail due to governments printing too much money, accumulating debt, or mismanaging economies [11] Historical Context and Alternatives - The Bretton Woods system, established in 1944, initially backed the US dollar with gold at $35 per ounce, but this link was severed in 1971, leading to pure fiat currencies [5][6] - Governments expand money supply because modern economies rely on debt, and deflation (money gaining value) is feared more than inflation [7][8] - The Austrian school of economics advocates for a return to hard money like gold, viewing inflation as a hidden tax [13] - Bitcoin is seen by some as a way to prevent inflation and government overspending due to its scarcity (21 million coins limit) [13] Wealth Protection Strategies - Hard assets, which governments cannot easily print more of, are recommended for wealth protection [15] - Gold has increased in value from around $40 an ounce in the early 1970s to over $3,000 today [15] - The median US home cost around $25,000 in 1970 and had climbed to about $390,000 by 2023 [15] - Bitcoin, launched in 2009 at less than a penny, has surged to well above $100,000 by 2025 [16]