Smart people don’t like to keep their savings in a currency. Even if that currency is the most stable and best currency in the world like the US Dollar.
Why is that?
To answer the why, it’s very helpful to understand what is “money” at a deep level.
To understand money, we can look at its two main functions:
- Currency: money is used as a medium of exchange (use it to buy a coffee)
- Store of value: It preserves purchasing power for future use (use it to save the extra value you generated in your job for future use)
The US Dollar and the Euro work well as currencies because they are widely accepted for everyday transactions.
But as I mentioned earlier, smart people don’t think Dollar and Euro (examples of good currencies) are great for keeping your long-term savings, meaning they are not a good “store of value”.
Why?
Because even the best (and luckiest) currencies lose 99% of their value in a long enough time period, like a 100 years.
Example: you could buy a mansion in Miami Beach back in thee 1930s for $100K. Now, 95 years later, you need to pay $30M for the same property.
This means even the best and luckiest currency in the world, the US Dollar (I say lucky because US won all the important wars and wasn’t invaded by other countries and didn’t fall into the hands of dictators so far) lost more than 99% of its value in less than a century.
The reason for that is very simple.
You see, the value of anything is largely determined by supply and demand. If supply increases more than demand, the price of that thing, will go down.
In case of the US Dollar, the US government has the power to print more money by pushing a button, which means the supply of the US Dollar can increase at the push of a button.
So the government can push this button every time they need money to fund some idea/project/war… which then causes the supply of the Dollar to increase without a meaningful increase in demand for the Dollar.
And guess what? government pushes the print button more and more often because it’s an easy way to get money without impactful consequences in the short term.
And the long-term consequence? Dollar losing 99% of its value over the last century.
Okay, I think we’ve established why smart don’t like to keep their savings in a currency even if that currency is the strongest currency in the world.
In Part 2 we will continue with why smart people put their savings into stocks, real estate, or gold and why this is not the best way to invest moving forward based on what I see coming.