‘There’s no money tree in this household. You can’t just go into the garden and pick dollars off the branches.’
That was the general rule applied in our household when we were little. Most five-year olds know what money is. Or at least they should. They know that their parents have jobs. They typically understand that those jobs help generate money for the family.
The bit where most kids stumble is the demand and supply aspect of it. As in, as kids we demand it and as parents you limit the supply of it.
You know as a parent — or just an adult in general — that money pays the bills and puts food on the table. Some of it goes into savings and investment, and some of it towards life’s luxuries, whatever they might be.
But as a five-year old you absolutely must have those new Ninja Turtle action figures!
It’s not even a ‘want’. When you’re eight it’s akin to needing air to breathe. If I don’t get those Ninja Turtles I might actually die.
Only some people get to print the money
Most kids go through this phase. And most parents reply with the concept of the mythical ‘Money Tree’. There’s no money tree to just go get cash for your Ninja Turtles.
Or rather, there is no money tree for the average worker. Most people go to a job, do a solid day’s graft and either weekly, fortnightly, monthly, they get paid for their work.
And in terms of just making money out of thin air, it’s simply not possible.
Of course if you’re a central bank then you can make money out of thin air. Many of the world’s banks have been printing money at will to feed their countries’ ballooning debt addictions.
But most of us don’t sit on the board of the a central bank. The average Aussie isn’t a member of the US Federal Reserve, the Bank of England or the European Central Bank. The typical Aussie worker has no say on how our own Reserve Bank shifts interest rates to manipulate asset classes, impacting the wealth of all Aussies.
No, that’s not how it works for the average Aussie. You work hard. You toil away. And someone else in an ivory tower with all their cronies makes decisions that affect your wealth.
Doesn’t seem right, does it? Doesn’t seem fair at all. That’s because it’s not. And for too long, centralised power has had too much control over your existence.
For many people that’s been OK…at least it’s been OK while things were good. During the 70s, 80s and most of the 90s, a whole generation of people came out pretty good.
But the 21st century hasn’t been as glorious for wealth creation for many. Those who are now starting to head into adulthood have a pretty future, financially.
You only need to look at Australia’s overall net foreign assets to see where it’s all gone wrong.
The great plunge
Net foreign assets is the sum of foreign assets held by monetary authorities and deposit money banks, less their foreign liabilities.
In other words it’s a great indicator of whether a country owns more than they owe, or owes more than they own — which is basically the definition of insolvency.
Source: Trading Economics
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As you can see from the chart, Australia’s net foreign assets were roughly neutral for decades. And then in the 80s it actually ticked up into the positive. In 1983 net foreign assets were $12.325 billion. During the 90s that started to head south. By 1993 net foreign assets were -$25.08 billion — a $37.4 billion turnaround.
But it wasn’t until the turn of the century that net foreign assets took a giant plunge off a cliff.
The kind of countries that exist in this immense state of debt are the likes of Spain, the US, New Zealand and Italy.
Whereas countries that own more than they owe include Germany, Sweden, Canada and the UAE.
The point here is countries like the US and Australia have been racking up debt and they won’t — can’t — get themselves out of the hole. There’s almost no practicable way they will ever be able to repay their debts, even if they liquidated everything.
They will continue to try to artificially grow economies. They’ll try, but fail. And they’ll push the cart further down the road, maybe for many more years. But one day it will come to a point. It has to.
In that situation, even the government’s and central bank’s money tree will burn to the ground. It will lead to a very troubled time in ‘traditional’ markets.
But the amazing developments we’re seeing now in cryptocurrency give the average person an ‘emergency exit’ from the current broken system. When the traditional system fails, it will be the crypto-economy that people turn to for wealth protection, and to continue to operate without their hard work and toil going to waste.
Not only will this become a form of protection from the potential calamities of the fiat money system, it could also provide the average person with a real, functioning money tree.
How to get money from a fork
The technical details are complex. But some cryptocurrencies go through a development impasse known as a fork. It’s when one portion of the development community wants to go one way, and another a different way.
As it’s a purely free market, market forces will ultimately decide which one survives…or if both survive and flourish. This can be a dangerous time. But it can also be fruitful. If a fork occurs — as it did with bitcoin in August this year — then two cryptocurrencies can exist post-fork. And they can both potentially have value.
The creation of a new ‘altcoin’ from a fork can literally create free money for existing holders. It may sound too good to be true. Except it is true. We’ve seen it before. And we’ll see it again.
There are more forks coming – in particular short term for bitcoin. And the idea of free cash being available is seeing a huge rush into bitcoin right now. Much of this is in anticipation of getting free money from a fork.
It’s a risky play — post-fork, the ‘price’ in fiat money may head south real fast. And those who came in at the peak may get cold feet and want out of it all, driving the price down even farther.
Long term we’re still of the view that entry to bitcoin now at any price is a smart move. But there are traders and chancers just looking for the quick buck. They’re going to make some headlines, as bitcoin’s volatility will soar in the coming weeks.
But if, like us, you share the long view and see what’s really going on, then you’ll be enjoying all this action and excitement.
We certainly are.
Editor, Australian Small-Cap Investigator