Things aren't getting more expensive. Your dollars are getting less valuable. Understanding the difference is one of the most important financial insights of our time — and the foundation for understanding why Bitcoin exists.
Most people look at rising prices and conclude that goods and services are becoming more valuable. The more accurate interpretation is the opposite — the unit of measurement itself is losing value.
The grocery bill goes up. Gas costs more. A house that sold for $200,000 now costs $600,000. The conventional conclusion: things are getting more expensive.
Goods haven't changed. The dollar's purchasing power has declined. It now takes more dollars to buy the same thing — not because the thing is worth more, but because each dollar is worth less.
The U.S. M2 money supply — a broad measure of dollars in circulation — grew from approximately $15 trillion to $22 trillion between early 2020 and mid-2022. A $7 trillion expansion in 24 months. To put that in context: it took the United States over 200 years to create the first $15 trillion. It took two years to add nearly half that amount again.
Source: Federal Reserve Bank of St. Louis (FRED). M2 money stock, seasonally adjusted. Values approximate for illustration.
The fiat monetary system — the one every major government uses today — has no hard cap on money creation. Understanding how this works is not a conspiracy theory. It is basic monetary economics.
The Federal Reserve can create dollars electronically, without any corresponding increase in real economic output. When the government needs to spend more than it collects in taxes, the Fed accommodates that by expanding the money supply — a process known as quantitative easing.
When more dollars chase the same amount of goods and services, prices rise. This is inflation — and it functions as a tax on everyone who holds dollars. Your savings lose purchasing power without anyone ever writing you a tax bill. Taxes aren't just what the government collects — it's everything they spend, financed by diluting your dollars.
When you work, you trade your time and energy for money. In a fiat system, that money sits in a medium whose supply can be expanded at will — and has been, dramatically. Every dollar created dilutes the ones you already hold. The leak is built into the system.
In response to COVID-19 lockdowns, the U.S. government deployed an unprecedented fiscal and monetary response. The M2 money supply grew by a record 27% in 2020–2021 — larger than the stimulus during the Great Depression (10%), larger than World War II (18%), and larger than the 2008 Financial Crisis (10%).
The inflation that followed was not a mystery. When you increase the number of dollars by 27% while the supply of real goods and services remains roughly constant, prices rise. The purchasing power of every dollar already in existence was diluted.
People who held their savings in dollars saw their purchasing power erode. People who held Bitcoin — a monetary asset with a fixed supply — saw the opposite.
"The most important monetary good in an economy is the money itself. If you store your economic energy — your work, your time, your life — in something with an infinite supply, you should expect it to be worth less over time. Bitcoin fixes this."Fortress Advisors — Understanding Money
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