Wealth Transfer in Inflation

By idiosyncratic | Idiosyncratic Crypto | 20 Nov 2023

This is not a secret that inflation is an indirect taxation of income that is led by the central banks via printing countless amounts of money. Basically, the problem itself occurs when the economy is injected 2 times more money but your salary does not have a similar impact because the numbers on the Consumer Price Index (CPI) or other data are always more "optimistic" than what reality is.

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When the money is printed today, it does not show its bad side tomorrow. Rather, you always see the best parts of it with more money and, temporarily / until the prices go higher, cheap assets around. Yet, as the weeks pass, the stocks in warehouses are sold, the newly produced items have higher production costs and there will be additional allocation of profit for the sellers.

As an inevitable consequence, neither the government that asks the central banks to print money out of thin or nor the producer companies that determine the price of things will lose their purchasing power. Rather, it will be people themselves that day by day lose their capability of owning valuable assets.

Here, we need to realize something: The wealth is being transferred.

Resource Transfer: Time, Energy & Money

Simply, we are working for someone else to make better profit and grow his / her wealth in time if you work 9 - 5. This is not a huge problem because it would never be possible to have 8 Billion self-employed people.

The point is the "value" of the resources that you spend regularly and the "power" of the medium of exchange you are given in exchange for what you are giving.

In an ideal world, you work 9 - 5 for someone else but you can own whatever you need, there is no single problem. Yet, is it the case around the world when there is stubborn inflation due to massive amounts of money printed?

The case is even worse for the developing countries in which the central banks doubled or tripled the total money supply in 5 - 10 years. Here, your "sources", which can be simply identified as time, money, and efforts, directly lost their equivalents in the form of money. For instance, when the national currency loses half of its value, so does the employees' salary.

Ultimate Level: Wealth Transfer

This becomes inevitable when only a small group of people can control the price of things thanks to mass production and cheap production costs while the rest of the population watches the meltdown of their hopes and future.

A less-paid man who cannot get a rise in salary that is equal to the inflation rate cannot catch up with the prices of things, houses, cars, groceries, etc., and the dark hole of poverty forces him to get more debt and spend more to stay alive.

That may sound like a scene of a dystopia but this is a fact for millions of people. Unrealistic data of institutions let inflation steal their future. On the other hand, the minority group that can make use of inflation only grows their portfolio and owns more solid assets. While there are cheap loans, better cars, and more houses for a small group, there are always more problems for the others.

We may call it cheap labor in inflation, wealth transfer, or loss of purchasing power. Eventually, all of them address the burden of more debt and less life quality for the people. I wonder if the governments would take sincere steps to deal with this invisible (!) problem.

Who knows, maybe crypto is the only possible solution to escape from the rat maze.

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