Your Income is Becoming Worth Less - A History of Debt

Your income is getting destroyed.

You're working harder for less.

Much less.

This isn't fear mongering or "conspiracy theory", it's the documented truth.

Stick with us for a minute...

People ask us all the time why we get our knickers in a knot over things like interest rates, inflation and money policies around the world.

Why we don't just focus on helping people increase their personal income.

Why we don't just tell people where the best places to buy property are.

Why we don't just explain what the best real estate strategies are.

Why we don't just share how to make an extra $500 a month with people and "cut to the chase".

Well, we'll tell you why...

First, we're monetary policy geeks.  There you have it.  We're pure money geeks and we love studying the stuff.  Geek on.

Second, unless we know the rules of the game there's no way we can win.  And if you don't know the rules of the game, there's no way you can win either.

And for years we didn't know the rules of the game.

Now we do - and we get a selfish kick out of sharing it.

So there you have it.

So, back to the rules of the game...

Sound money is the cornerstone of any stable economy.

Unfortunately, today, we don't have sound money.

Even the online dictionaries have incomplete definitions.

And many dictionaries, not just this one, miss the mark completely.

The only one, shockingly, that has the proper definition is Wikipedia.

Here is the proper definition of money summarized by us:

Money is an object that is used as a payment for goods or services and has these three functions:

1. A medium of exchange.

2. A unit of account.

3. A store of value.

Go do a Google search yourself, you'll notice that most definitions don't include all three.  They're wrong not to.

Now, let's take a look at our current "money", the dollar bills in your pocket.

Can they be used as a medium of exchange?

Yup, check on that.  You can pass them over to almost anyone in the community and get something back in return.

Can they be used as a unit of account?

Oh yeah, check again.  Our Canadian money is divisible and each unit is equivalent.  A quarter is a quarter is a quarter.

Is it a store of value?

Ouch.  Sorry, that's a no go.

Our Canadian money is DEFINITELY not a store of value.

Our Canadian dollars and coins are much more of a "currency" than "money".

Wikipedia has a good currency definition here.

Currency and Money are very different.

Those bills in your pocket just don't qualify as money.

They fail on item #3 above.

They are not a store of value.

You probably know that already, or at least have a sense that those bills don't buy you what they used to.

And just to prove the point check this out...

The Bank of Canada has a great calculator that clearly tells you how much money you're losing every year.

In 1980 our father made $52,000 per year as a drywaller, before he started his own business.

I can't recall exactly but during that time I don't believe our Mom was working, she did start working again later though - she's a very hard worker 🙂  (Hi Mum - love you!)

Now, look at the calculator again.

Today, our father would have to be making $135,290.04 as a drywaller to have the same standard of living.

How many drywallers are making that kind of money?

The calculator evens tells us that our money declined in value at 3.13% per year.

That's nice of our government to share that news with us.

At least it's out in the open right?

OK, now you might be saying to yourself....guys, big deal, I'll just make more money as the years go on so I'll be able to sustain the standard of living I have today.

Great.

You better get started quickly.

Because at the same rate of inflation, my 9-year old son, if he wants to make that $135,290.04 per year when he's 40 years old ... will have to be earning $351,988.37 per year.

Does this sound normal to you?

It almost makes me laugh out loud.

Look, the reason that things have to grow, or "inflate", is that our money system is "debt based".

In order for our economy to keep growing things must get more expensive.  And with that, we must get "higher levels of debt".

That's how the system works.

Record high debt levels aren't actually a problem.

They're required.

Remember, we didn't make the rules, we're just aware of them.

If we're not growing our debt as a country, our economy isn't growing.

That's how it works when you have a "debt based" money system like we do.

Now, it's important to note that the SPEED at which we accumulate the debt may be important to discuss.

But let's not confuse the issue, the debt levels must expand for the economy to grow.

More debt means more currency floating around the system, which *usually* means the economy is growing.

And we're not alone, the entire world is using the same system right now.

Essentially since 1971 everyone has been on a system where they just keep printing money.

Before 1971 there was some truth to our dollars being real money.

But when President Nixon quietly pulled the U.S. dollar off the gold exchange standard we became a world of pure debt.

And it hasn't taken long for the entire world to be engulfed by it.

Check this out...

(Source)

So what's the point?

Just to be aware.

Be aware that when you save $10,000 for your children's University in 15 years that the $10,000 will be worth a lot less and you'll need a lot more.

Be aware that the money you save today needs to be earning at least 3% to keep its value. If you're making 5% with your investing you're really only ahead 2% if inflation is at 3%.  So 5% really equals 2% with this math.

Be aware that to have true financial freedom you want to understand the rules of the game.

And if you're reading this you're likely already very well educated in all of this stuff.

We just couldn't help sharing it again.

Remember, we're monetary geeks and can't help it.

Sorry about that 🙂

Well, we're only half-sorry really.

That's it for today...

Until next time ... Your Life! Your Terms!