18th century French economist, Richard Cantillon observed that those closest to the money printer, benefited the most financially.
Governments, banks, businesses, and asset owners like you and me, can take advantage of the Cantillon Effect too.
How?
We invest.
Investing works, because the money’s broken.
It doesn’t sound ‘right’, and how can money be broken anyway?
When we put governments and central banks in charge of the money, we give human time and energy to incompetent actors in high places. They issue new currency through complicated shell games in order to achieve an advantage at a low cost.
Once you navigate the morality and magnitude of the situation, it’s possible to form an investment strategy that enables you to prosper.
It’s really simple too:
1 – Work hard at increasing your income.
2 – Spend less than you earn.
3 – Invest the rest in ‘assets’, and borrow to do more of it, if appropriate.
Property, shares, collectibles and crypto rise in value at a rate highly correlated to the rate of currency debasement (where new currency created through banking activity, ‘waters down’ the value of all pre-existing dollars already in circulation).
Accumulate assets and use mortgages while you’re income’s strong, then deleverage and decumulate until you die.
Wealth gravitates towards asset owners because the financial system requires the creation of new currency at an accelerating pace to sustain itself.
Relentlessly, making the rich, richer.
Anything, of value is denominated in a currency which loses value over time.
Diversification, concentration, asset allocations and risk profiles matter, but the Cantillon Effect may matter more. If currency evolves, the way we invest may have to change. The Cantillon Effect works in this financial system, but will it work with CBDCs?
Currently, about 90% of the world’s central banks are in various stages of launching their CBDCs or central bank issued digital currencies.
The Swift financial network is 1-2 years away from being able to integrate various CBDCs into the traditional dollar system.
Soon, we’ll all likely operate a digital wallet, and use CBDCs just like everyday money.
Is this an evolution of money? If so, it’s important to understand as much as we can about it.
Apart from AI and robotics, we may be in one of the greatest periods of transformation the world has ever seen. If that’s true, there’s going to be new risks, and new returns.
