Warren Buffett's Recent Explanation of How Money Now Works Is the Most Important in History

The value of the money you have is changing. "Debt" and what it means is fundamentally changing.

 

Watching Warren Buffet completely change what he believes about moeny in a matter of month has been fascinating.

 

He is considered the most successful investor in history, so he is worth listening to when financial marekts enter a strange period that nobody understands or can properly explain (even if, like me, you don't love everything he says).

 

THese two lines from Warren made me think:

 

"The US debt isn't going to be repaid; it's going to be refunded."

 

"You better own something other than debt."

 

Buffett explains that when the government can just keep on printing money to pay their own debt it's laughable to thinkg they will default. He says, "The trick is to keep borrowing in your own currency."

 

So if money will keep being printed out of thing air then what does that mean for your investments, assets and savings? Let's expore the topic in simplistic terms and see what you can do about it.

 

The Most Important Lesson On How Monye Works From Warren Buffett

This is whyat Warren said recentrly about how money works that will test everything you thought you knew about money:

 

If the world turns into a world where you can issue more and more money and have negative interest rates over time - I'd have to see it to believe it, but I've seen a little bit of it. I've been surprised. I've been wrong so far.

 

If you can have negative interest rates and pour out money, and incur more and more debt relative to productive capacity, you would thing the world would have discovered it in the first couple of thousand years rather than just coming on it now. We will see.

 

It's probably the most interesting question I have ever seen in economics.

 

Can you keep doing what we are doin now? The world has been able to do it for now a dozen years or so. We may be facing a period where we are testing that hypothesis that you can contivnue it with a lot more force than we have tested it before.

 

This description from Warren about all the free money we have all been getting access to because of a health crisis may explain why Warrren has sold a lot of his US bank stocks recently.

 

The influential finance blog Zero Hedge wrote recently that Warren "appears to now be quitely betting against the Unites States," because "the famously anti-gold investor hss abandoned banks - the bankboen of America's credit-driven economy -in favor of a gold miner." 

 

A friend said this to me the other day: "Watch what the billionaries do, not what they say." If Warren's actions are anything to go by then the recorde prices in the stock market are soemthing to be very cautious of.

 

Inflation Is Taking Hold

Inflation is when prices go up and the vlaue of your money decreases. Four dollars last year may have got you a small cup of coffee. That same cupt of coffee might cost you $5 this year, as a simple example.

 

Inflation is a hidden tax on you moeny.

 

Warren says, "I've been wrong in thinkgin you could have the developments you have had without inflation taking hold."

 

Warren has put his firm's money in gold, and treasury bills which he describes as "a terrible investment over time." 

 

So Warren is comfortable putting his money in terrible investment in the short-term because of what he can see in the world of finance. That decision is worth contemplating when thinkg about your own money and investments.

 

Why All of This Matters to You?

We have talked a lot of finance shop in this article. Let's break down why the cahgne in how money now works matters to you.

 

Negative interest rates

Negative interst rates can be bad for you because it menas you have to pay to store your moeny. It also means the bank you choose to bank with may face severt financil trouble that leads them to go out of business.

 

Yes, bnks have insurance in case of such an event, but if the problem is too big then that deposit insurance is useless - many people do not understand this. They assume the goverment or a magic insurance policy will save them without any negative consequences.

 

We are in uncharted territory and I would not be relying on anybody to come and save you and your money.

 

The poor are being obbed by the rich who have the data to predict their moves.

Many retail investors are buying stocks using apps like Robinhood - the data tells us this trend.

 

While billionaires like Warren are exiting stocks and running to safety, everyday people seem to belive they are smarter than the pros - or the high-frequency, non-human trading bots who predict the moves of the retail investor and bet against them.

 

Investments firms use high-frequencey trading to automate their investment decisions and beat the average investor. THese same firms are front-running retail Robinhood investors. What does this mean in simple terms?

 

Sophisticated investment firms, according to Blookberg, are getting access to datat that tells them what the retail investors (dumb money as it's known in finance) are doing so they can take advantage of them.

 

This data allows investment firms to rob the poor and tpay the rich -the name of the Robinhood app is kind of ironic, isn't it?

 

The Stock marekt bubble

Record uneployment. A global health ciriss. Protests. Despite the world we live in stock markets are beating record hight. Crazy, or a disaster wating to happen?

 

Another iconin billionarie investor, George Soros, called the stock marekt a bulbble. "Investor are in a bubble fueled by Fed liquidity," he says and that's why he "no longer particiaptes."

 

Either everything is find with markets and businesses haven't been affeted by the health crisis at all, or we are watching a bubble that's about to pop. I don't have the answer so that's why I' sitting on the sidelines.

 

The change in the velocity of money

While free money is being iven away through economic stimulus and large amounts of money are being printed out of thing are, the velocity of money is down. (The velocity of moeny just means how many times one dollar passes through multiple people's hands.)

 

When large amounts of money are created out of thing air and that currency is not spent, when that money eventually is pent, it can lead to larger than normal amounts of inlation that devalue the money you have worked hard for.

 

Takeaway

The way money works and functions in society has fundamentally changed. It has got some of the greates investment minds like Warren Buffett and George Soros challenged, too. THey have run to safety as a result.

 

What you can do about the change in how money works is this: be cautious in the short-term with your money and investing in assets.

 

The other critical learning you can take waay from Warren is to spend some time undesratnding these financial concepts via a website like Investopedia:

 

If you undersatnd these basics of how money works you can protect yourself and everything you have owkred for. Now is not a time to panic. Now is a time to learn and prosper form what is transpirin tn the global economy.

 

The value of the money you have is chaning. The word devt and what is menas is chaning. Watch what the billionaire investors are doing because they tell you a lot of what you need to know.

 

You decide whether you donate your money to a trading app, what it devalue becuase of inflation, or invest with a big safety net and act like apro.

 

 

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This post is from here, https://medium.com/the-ascent/warren-buffetts-recent-explanation-of-how-money-now-works-is-the-most-important-in-history-2e45461a5969