Mar 25, 2024
Despite a recent reduction in the headline inflation rate, the consumer price index has risen by 20% since the onset of 2020.
This situation affects everyone by diminishing the value of money. In the words of independent presidential candidate Robert F. Kennedy Jr., inflation effectively diminishes “the freedom to keep the fruits of your labor.”
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It’s an apt analogy. As price levels escalate, the purchasing power of your paycheck dwindles, constraining your ability to acquire goods and services.
For those seeking strategies to counteract inflation, Kennedy recommends cryptocurrencies.
“Cryptocurrency is the off-ramp for our addiction to the Federal Reserve. It’s the best hedge against inflation,” he asserts in a recent tweet.
Addiction to the Fed
Inflation can be sparked by various factors, including monetary policy.
As part of its response to the economic fallout from the COVID-19 pandemic, the Fed implemented quantitative easing, a technical term that describes an effective increase in the money supply.
Such money printing can cause inflation by increasing the amount of currency in circulation without a corresponding increase in goods and services. This excess money chases the same amount of products, leading to higher prices.
To tame the subsequent inflation, the Fed has tightened monetary policy by raising interest rates and reducing its balance sheet.
Kennedy has expressed criticism of the Fed’s approach, denouncing both inflation and high interest rates as “poisonous medicines.”
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Crypto to the rescue?
Kennedy did not specify a particular cryptocurrency in his recommendation for inflation hedging. However, the rise of Bitcoin is often attributed to people’s growing skepticism towards fiat money. Unlike fiat currencies, Bitcoin can’t be printed at will by central banks. Instead, the number of Bitcoins is capped at 21 million by mathematical algorithms.
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Beyond their potential to combat inflation, Kennedy appreciates cryptocurrencies for their independence from the traditional financial system.
“[Cryptocurrency] takes control away from the government and from the monopolistic banking system, which uses money printing to shift wealth upward to the oligarchy of billionaires while impoverishing regular Americans,” he remarked.
Kennedy did not elaborate on the mechanics of this wealth shift, but the disparate impacts of the recent inflationary period on the affluent and the average citizen have drawn widespread scrutiny.
In January, the non-profit Oxfam reported that the world’s billionaires have become $3.3 trillion wealthier than they were in 2020, with their wealth increasing at a rate three times faster than that of inflation.
The report painted a starkly different picture for the working class, noting that individuals are working harder and longer hours but struggle to match the pace of inflation.
“The wages of nearly 800 million workers have failed to keep up with inflation and they have lost $1.5 trillion over the last two years, equivalent to nearly a month (25 days) of lost wages for each worker,” the report states.
If you want to use cryptocurrencies as a hedge against inflation, keep in mind that they can be very volatile. Furthermore, while many platforms allow individual investors to buy and sell crypto, be aware that some exchanges charge up to 4% in commission fees for each transaction.
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
