You can work hard, put money aside every month, and still end up behind without ever making a mistake, because the money you’re paid in is built to lose value every year. That’s a design choice, and it could have been designed otherwise. Your instinct that something is off is exactly right.
Technology keeps making things cheaper to produce. In an honest system, that would show up as prices falling year after year, which means your savings would buy a little more every year you simply held them. Standing still would mean slowly getting richer. But our money system is built on debt, and a debt system breaks if prices broadly fall. So governments and central banks create new money and credit to push prices up instead. That reverses the natural direction of your savings. Instead of gaining purchasing power by default, your money loses it by default. And once that’s true, you’re forced to take risk with money you already earned just to keep what it could buy on the day you earned it. Investing stops being a choice and becomes a defence.
The treadmill you’ve noticed is the system doing what it was built to do. The same mechanism drives the housing madness, the wealth gap, and the feeling that everyone is running harder for less. That puts it close to the centre of the whole thesis. If you understand why saving stopped working, you understand most of the rest.
How the loss gets built in
Productivity means making more with less. When tools improve, the same goods take fewer hours, less material, and less energy to produce. In a free market, competitors adopt the better method and undercut each other, so prices fall toward what it costs to make one more unit. You see it clean wherever the new money doesn’t pool. Taking and sharing a photo used to cost film, developing, and postage. Now it’s free. So the natural state of a technological economy is falling prices, which means money that gains purchasing power. In that world, an ordinary person gets ahead by working and saving, with no cleverness required.
Most of the money we use is created through lending, which is how the policy actually works. Cheaper borrowing means more lending, and more lending means more money. When a bank makes a loan, it creates the deposit it hands you, so most of the pounds in existence are also somebody’s debt. Those debts are fixed in pound amounts. If prices and wages broadly fall, your mortgage payment doesn’t fall with them, so the debt takes a bigger and bigger bite of your income. Spread that across every household, business, and government at once and you get cascading defaults, and the banks fall over. A system loaded with debt can’t tolerate falling prices. So the people running it make sure prices don’t fall. The 2% inflation target is a commitment to create enough new money and credit, every year, to overpower the natural price falls that technology keeps delivering.
The cost to you is bigger than the 2% on the label. If better technology would naturally have made your cost of living fall by, say, 3% this year, and policy pushed it up 2% instead, the true transfer is more like 5%. And 2% is the target, not a ceiling. In the years when the new money comes fastest, prices climb well past it, and so does the transfer. Even a year of “zero inflation” means you were denied the price fall you should have had. You worked just as hard, the things you buy got cheaper to make, and the saving never reached you. It was absorbed by the expansion of the money supply. That’s the theft, and it’s invisible because we measure everything with a unit that keeps shrinking.
New money lands unevenly, because it enters through the financial system, so asset prices move first. Houses and shares rise ahead of wages, and the people who already own them benefit before prices adjust for everyone else. Economists call that the Cantillon effect [the people closest to new money gain at the expense of those it reaches last]. Meanwhile the interest paid on ordinary savings is held below the rate prices rise, on purpose, because that shrinks the real weight of all that debt [financial repression, policies that move wealth from savers to borrowers by keeping rates below inflation]. The “safest” place for your money is engineered to lose.
The menu for money you’re trying to keep is short. Hold cash and lose, because that’s what this money is built to do. Or move up the risk curve. Buy a house to live in and to hold your savings. Buy shares in companies you’ve never thought about, with no view on the businesses, because you have to outrun the money creation. Money itself has stopped doing the job you need it for, which is carrying your work-hours safely through time. So everything else gets drafted in to do that job, and each of those things picks up a monetary premium [extra price an asset carries because people use it to store value, on top of its value in use]. That’s a big part of why a house in this country costs what it costs. It’s doing two jobs at once.
What it looks like in a normal life
Your savings account pays 2% while prices rise 6%. That’s a guaranteed loss that counts as the prudent thing to do. Your pay goes up 3% and rent and food go up 8%, so you fall behind while on paper “getting a raise”. Your neighbour’s house doubles in price and he feels rich, but he’d need an equally inflated house to move into, and the council tax and upkeep rise with it. Mostly the ruler shrank. And your phone, your photos, your maps, and your music got dramatically cheaper over the same years the essentials ran away from you, which is the tell that the whole picture is distorted. Both forces are visible in one life. Technology pushing down, money pushing up.
Four reasons the treadmill might be fine
“Investing builds wealth anyway, so what’s the harm?”
It can. But there’s a world of difference between chosen risk and forced risk. Forcing nurses, builders, and pensioners to become portfolio managers pushes people into risks they don’t understand at exactly the wrong moments, and across society it shovels time and capital into speculation instead of production. The bubbles and crashes that follow are what you get when everyone must chase returns to stand still.
“Without inflation, nobody would spend and the economy would stall.”
You buy a coat in winter because you’re cold, a phone because it’s useful, dinner because you’re hungry. Falling prices don’t stop people buying what they value. Televisions get cheaper and better every year and people still buy them. What falling prices trim is waste. Say the claim out loud, “we must quietly take from your savings or you won’t buy things”, and it refutes itself.
“But deflation causes depressions.”
Careful, that one word covers two different events. Prices falling because the debt pyramid is collapsing, that’s destructive, and it’s the ghost central banks are built to fight. Prices falling because we got better at making things, that raises living standards. Our system can’t tell them apart because it’s so loaded with debt that any broad fall in prices threatens it. That’s an indictment of the debt design, and cheaper goods were never the danger.
“Wages rise with inflation, so it comes out even.”
They rise last. Assets move first, the weekly shop moves next, wages limp in behind, and the lag is the transfer. That’s why the same event is called inflation by the people who own assets and feels like a pay cut to the people who don’t, which is one event seen from two sides.
What standing still should look like
In a system where nobody can expand the money, the picture inverts. Wages are sticky [pay adjusts slower than prices], prices drift down with productivity, so your purchasing power rises while you do nothing clever at all. Saving works again. Patience is rewarded instead of punished. The baseline return on simply holding money becomes the productivity growth of the whole society. And the whole society is exactly who should receive it. Everyone. Investing then goes back to what it’s supposed to be, a deliberate choice to back a business you believe in, and no longer a forced defence of what you already earned. This is why I end up talking about bitcoin at all. It’s the first money with a supply nobody can expand, and you can hold it yourself with no one standing in between. Measured in it, the thesis says prices fall over time, which is the natural state showing through. Whether and how you act on that is your call, not advice from me. The treadmill is a property of the money, so only different money removes it.