99% of the world’s currencies are fiat currencies. All those fiat currencies are the derivative of US dollar (to be accurate the Federal Reserve Note (FRN)). Taking my city, Hong Kong, as an example, there are three banks in Hong Kong (HSBC, Standard Charter and Bank of China) can print Hong Kong Dollar. They need to buy one US dollar (FRN) to print around HKD 7.75 to 7.8. In the financial tsunami of 2008, the quantitative easing in USD pumped an enormous amount of money supply to FRN.
Source: http://www.tradingeconomics.com/
At that time, the Hong Kong SAR government begin to plan many infrastructural projects to the public. In 2008, the unemployment rate of this city suddenly increased a lot. One possible reason for the pushing construction project may be to improve the economy, and this can also improve the unemployment rate.
In the construction industry, the contractors worried that there are not enough projects to run their business. When the contractors bid the government projects, they may use a lower profit margin bidding strategy to win the bid. Unfortunately, after they won the bid and two years later, they found that the construction cost increase significantly (over 50% to 100% range) within a very short time frame. This sudden increase in construction cost was unexpected even for professionals who may have 30 years experience in the industry. The hidden reason behind may be the quantitative easing of the USD (FRN). When the money supply of USD increases, the linked currency like HKD will also increase which can keep the exchange rate constant (1:7.8). When there is significant much more HKD flow into the market, the purchasing power of each dollar of HKD is diluted. That is why fiat currency cannot store the value of your hardworking.
Go back to the question why we cannot work just 4 hours per day to support our living. The inflation becomes a significant issue. Many people bought real estate property to store their hardworking value. To invest in property, we need to take into account some extra more risk. Firstly, many people buy properties by mortgage from banks. To have a mortgage, you just like to trading stocks share with margin. When the price of the stock drops instead of increase, it firstly losses the deposit and then it may have a margin call. To overinvest in the property market with a mortgage, it involves the monthly repayment of the loan. Many people use their monthly earning to support the monthly repayment. Some investors will rent out the flat and use the rent to repay the monthly repayment. However, when the market enters into the downward cycle, it will not be in a single market, single industry or one location. Our world interconnects to each other. No single industry are insulated. No single market is alone. No single location is separated. That means when the price of properties drop, it will bring down the stock prices, the rental value of fiat and your monthly salaries.
In my point of view, to buy something scare in the world without loan can play safely in the long term and protect our wealth. The answer is Bitcoin, physical silver, and physical gold. Many people criticized that those investments cannot generate passive income. If you buy stocks, it can produce the dividends which are passive income. My answer is “Oh Sorry! In the money printing world, the first thing first is to protect the purchasing power of our wealth instead of the digital numbers of fiat currency. Those digital numbers are just the illusion.
If you want to have a passive income on your investment, you may consider investing on Wealthy Affiliate like me. Try to spend a little on Google AdWord, build up your blog (website), publish it to the world. It will be a property which can generate a passive income step by step. It will be a property in near future.
