What is the problem with fiat currencies and our economy? The hyperinflation cycle that is created each time there is an economic crisis. By diversifying your assets into gold, residency permits, second citizenship, real estate or cryptocurrency you protect your wealth – you create Plan B.
What is fiat currency
Fiat currency is the EUR, GBP, USD we hold in our accounts and wallets at present.
Previously, the national mint would issue coins made of silver or gold or print notes that could be exchanged or traded for a specific amount of physical goods. Many people today (surprisingly) in fact still hold onto the notion that their money is backed by their country’s gold reserves. Yet this could not be further from the truth.
Fiat money is not tied to a national stockpile of gold or silver.
Read more: Fiat money economies built on lies
There is through a veritable problem with our fiat economy. An elephant in the room that needs to be addressed.
Many will argue that unless they hold Venezuelan pesos or currency from some other rogue or unstable economy, they are confident in the value of the coins tinkering in their wallet. Firstly because they can feel and see it and secondly because they have faith in their government and the stability of their economy.
So then, what is the real problem with fiat currencies?
The problem with fiat currencies is that they are issued and managed by central banks who coordinate with commercial banks that can swiftly increase the supply of currency.
In times of economic crisis the amount of money in the economy is increased through government loans and private bank loans at low interest rates.
This influx in money results in an economic boom that is in many ways created, manufactured.
It temporarily salvages the falling price of real estate by pumping cash into the market so purchases can be made. It also rescues businesses impacted from a crisis or economic slump thus minimizing unemployment. As banks lower interest rates to promote loans, spending and economic activity, those with large savings deposits are no longer incentivized to save more. Spending or overspending then ensues and prices soar.
With the economy over spending and borrowing beyond their capacity, there is an eventual crash on the horizon yet again. This can only be mitigated by further government intervention. So more money is injected into the economy to salvage it.
This cycle creates an ever-ending inflationary trend. As a result the purchasing power of the coins in our wallets is perpetually falling. That is the problem with our current fiat economy.
The fact that governments can instruct central banks to issue more money and then use this to fund their policies, in the long run, actually harms economies. Even intrinsically benign policies such as increased welfare support, furlough schemes, support packages etc. can be detrimental as the actual purchasing power of that country’s fiat currency falls and the cycle persists.
Read more: Demand for Cryptocurrencies anticipated to grow
A brief look at the US economy
As of last month, June 2021, the USA’s public debt was just risen exponentially.
This public debt has risen 4-fold in the past twenty years and includes bonds and intra-government debts. Numerous trillion-dollar stimulus packages have been issued to counter the damage that covid-19 is wreaking on the US economy. These packages are though adding to the overflowing debt.
Investors’ Plan B to ward against impending inflation and tax hikes
Cash is king will no longer be a valid statement. Trigger events like this pandemic will only hasten the rate of inflation and further devalue our existing stockpiles of fiat currency.
Diversification will become even more quintessential.
Whether its cryptocurrency or gold, stocks or real estate, residency permits or citizenship by investment. All are asset classes – ensuring a diversified portfolio of assets is the only way to preserve wealth.
Diversification not only counters inflation but wards against the risks of a wealth tax as pressures for wealth taxes mount.
During economic turmoil, governments have justification for raising taxes and imposing more regulation as they inject large sums of money into the economy. Critical times call for critical action – but the bill eventually needs to be footed by someone.
In most cases, the perfect scapegoat is the wealthy, the UHNWI, the private client.
Those at the lower spectrum of society are truly the most impacted by the innate problems of our current fiat currency economies. They suffer most from the economic hardships that unhinged inflation, unemployment and crisis create and consequently support government initiatives to increase global minimum tax and implement wealth taxes. They, justifiably so, ardently participate in chants of “ the Joe Biden Tax Plan .
To ward against these taxing policy changes, astute investors and UHNWI should invest in a Plan B to protect their wealth from governments’ strengthening grasp. Whether it’s an offshore trust structure, Greek Golden visa to capitalize on the Greek Non-Dom regime, Grenada CBI, or a Portuguese Non-Habitual Resident programme – the demand for international tax planning solutions and investment migration will continue to be of paramount importance and demand for it will soar.
