Instead of a deflationary spiral, the world went into more of an inflationary spiral. Wages rose. Homes became more expensive. HDB flats began to sell for SGD1 million and above. However, the expanded money supply did not distribute itself fairly. The money flowed disproportionately to the rich. The poor did not get much of it. Income inequality no longer was a simple Gini coefficient. It became a hard reality of life for many people on the wrong side of the wealth divide. The things they needed to buy became more and more expensive. Yet, their wages did not increase. Meanwhile, the rich people became even richer than before.
Today, in 2020, the US government is again creating money out of thin air to support the US economy through Covid19. The US Fed can indeed create money "out of thin air." It can do so with a few keystrokes on a computer, when transacting in open market operations. That's when the Fed buys an asset from a financial institution and pays for it with money it simply creates out of nothing - not even thin air.
One would expect such actions to lead to hyperinflation. Yet, since 2008 till now, there has been moderate inflation and a relatively strong economic recovery.
I watched Trump's recent fiscal stimulus packages with a mixture of awe and horror. I was awed that it could be done this way. I was horrified at the potential consequences. I expected that the USD would be devalued against all other world currencies. Strangely, that has not happened. Strangely, the USD strengthened against the SGD.
I was puzzled and then I woke up this morning and had a moment of epiphany. The USD is a global currency. When the US creates money out of thin air, liquidity flows into every other country in the world. This is why Singapore has become so expensive since 2008. US tech companies hold virtual global monopolies - Facebook, Google, Amazon, Microsoft, Apple. We spend money there that flows straight back to the US.
If the US continues to make money out of thin air, it is not just the US alone that will enter hyperinflation. It is the whole world. Unless we take steps now to decouple ourselves from the US.
In the years to come, some American CEOs will become even richer. The world's poor will become even poorer. For the first time I understood that...
- Trump's ungodly decisions affect my life
- the world is going from ungodly living to even more ungodly living
- I need to somehow find a way to swim in the opposite direction, when managing my finances.
There are a few countries that are swimming in the other direction. No one envies them now but perhaps, we soon will. Japan has been experiencing deflationary prices for 2 decades now. Things are getting cheaper there. Taiwan has been quietly and silently stuck for decades. Wages there do not rise. Prices do not rise. People there live well and eat well. They are happy.
Really... why do we always need growth and inflation in a country? Why can't we simply live the good life, eat enough, rest enough, work enough without the constant need for seeing growth? In truth, when you sell your house 10 years later for double the value, it is not growth, it is inflation. Inflation and "growth" leads to greed and dissatisfaction. This is exacerbated by the way the extra liquidity is distributed more to the rich and less to the poor.
Proverbs 22:16
Whoever oppresses the poor to increase his own wealth, or gives to the rich, will only come to poverty.
... and this is what Trump is doing. However, I fear that Trump is doing it to the whole world, not just to the Americans.
Uncertain Future
I now fear the future. With the kind of actions the US is taking, will we see a collapse in fiat currency? Will we see a period of global hyperinflation followed by wars and revolutions, only to settle back into a new world order.
Scary thoughts.
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