name: broken-money
description: Apply Lyn Alden's Broken Money framework for understanding monetary systems, fiat currency dysfunction, and the case for hard money. Use when analyzing macroeconomic trends, evaluating currency/inflation risks, understanding Bitcoin's value proposition, making long-term financial decisions, or explaining monetary history to others. Also use when building products affected by monetary policy or currency depreciation.
tags: [macro, risk]

Broken Money

How the monetary system broke and what comes next.

The Core Problem

Money is supposed to be three things:

1. Medium of exchange — Buy/sell goods
2. Unit of account — Price things consistently
3. Store of value — Preserve purchasing power

Modern fiat currencies work as (1) and (2) but fail catastrophically at (3).

Key insight: Money that doesn't store value forces everyone into speculation just to maintain wealth.

A Brief History of Money

Commodity Money Era

• Gold, silver, shells, beads
• Value from scarcity and utility
• Hard to produce more (stock-to-flow)
• Limitation: Hard to transport/divide

Gold Standard Era

• Paper backed by gold
• Combined convenience with scarcity
• Limitation: Governments couldn't resist printing more than reserves

Fiat Era (1971-present)

• Nixon ended gold convertibility
• Money = government decree
• No anchor to scarcity
• Result: Endless expansion, purchasing power destruction

Stock-to-Flow: The Hardness of Money

Stock = Existing supply
Flow = New production per year
Ratio = How many years of production to double supply

Principle: Hard money holds value. Soft money leaks value to those who create it.

The Cantillon Effect

When new money is created, it doesn't reach everyone equally.

Flow: Central bank → Banks → Institutions → Corporations → ... → Regular people

Those closest to money creation:
- Get new money first
- Buy assets before prices rise
- Benefit from inflation

Those furthest from money creation:
- Get new money last
- Buy after prices rose
- Suffer from inflation

Result: Wealth transfers from savers to asset owners, from workers to capital, from Main Street to Wall Street.

Why Currencies Fail

Pattern: Every fiat currency eventually fails or dramatically devalues.

Mechanism:
1. Government has debt/obligations
2. Obligations exceed tax revenue
3. Politically easier to print than tax/cut
4. Currency supply expands
5. Purchasing power falls
6. Repeat until crisis

Historical examples: Roman denarius, Continental dollar, Weimar mark, Zimbabwe dollar, Venezuelan bolivar

The US dollar: Lost ~97% of purchasing power since 1913 (Federal Reserve creation).

The Debt Spiral

Modern economies run on debt. Debt requires growth to service.

The trap:
1. Debt grows faster than economy
2. Interest payments consume more revenue
3. Must borrow more to service existing debt
4. Requires low rates (or printing) to avoid collapse
5. Low rates/printing → currency debasement

Current situation: Global debt/GDP at historic highs. No political path to reduction.

Implication: Continued currency debasement is the path of least resistance.

Financial Repression

Governments suppress interest rates below inflation to erode debt burden.

Mechanism:
- Inflation: 7%
- Savings account: 2%
- Real return: -5%
- Savers subsidize debtors (including government)

Consequence: Holding cash or bonds guarantees purchasing power loss.

Forced into speculation: To preserve wealth, everyone must become an investor—driving asset bubbles.

The Bitcoin Thesis

Bitcoin as a solution to broken money:

Not investment advice: Understanding the monetary case for Bitcoin ≠ specific allocation recommendation.

Hard Money Principles

Store of Value Priority

In a broken monetary system, preserving purchasing power is the first priority.

Hierarchy:
1. Don't lose purchasing power
2. Then think about returns

Savings vs Investment

Savings: Preserved purchasing power, minimal risk
Investment: Risk capital for return

Fiat breaks this distinction—"savings" in dollars is guaranteed loss.

Hard money restores it: You can save without speculating.

Long-term Thinking

Hard money enables long-term planning. Soft money forces short-term thinking.

Why: If money loses value, you must deploy it quickly. Can't plan decades ahead.

Consequence of soft money: Time preference increases, investment horizons shorten, civilization degrades.

Implications for Strategy

Personal Finance

• Holding cash long-term = guaranteed loss
• "Safe" bonds may have negative real returns
• Asset prices rise partly from money supply growth
• Consider hard asset allocation

Business

• Revenue in depreciating currency, costs rise with inflation
• Pricing power matters more
• Cash management becomes treasury management
• Long-term contracts need inflation consideration

Building Products

• Users' money is losing value—help them
• Financial products should account for real returns
• Subscription pricing needs inflation adjustment
• International products face currency risk

Evaluating Monetary Claims

Questions to ask:
- What's the stock-to-flow?
- Who controls the supply?
- What's the historical track record?
- Who benefits from new issuance?
- Is this purchasing power preservation or speculation?

Red flags:
- "Stable" fiat currency (stable against what?)
- "Risk-free" government bonds (in real terms?)
- Nominal returns without inflation adjustment
- Trust in institutions without verification

Application Checklist

When making financial or monetary decisions:

1. [ ] Am I measuring in nominal or real (inflation-adjusted) terms?
2. [ ] What's happening to the money supply?
3. [ ] Who's closest to money creation? (Cantillon)
4. [ ] What's the stock-to-flow of this asset?
5. [ ] Am I saving or speculating? (Can I even save in this currency?)
6. [ ] What's my purchasing power trajectory?
7. [ ] Am I being financially repressed? (Rates < inflation)
8. [ ] What's my hard asset allocation?

Anti-Patterns

• "Cash is safe" → Safe from volatility, not from debasement
• "Bonds are conservative" → Negative real yields = guaranteed loss
• "Inflation is transitory" → Monetary expansion is permanent
• "The dollar is strong" → Against other weak currencies; not against real goods
• "Debt doesn't matter" → It matters; it's paid through debasement
• "2% inflation is good" → 2% annual theft; 50%+ over 30 years
• "Trust the Fed" → Their mandate creates the problem