Skip to content

Latest commit

 

History

History
8 lines (5 loc) · 1.21 KB

Hard-vs-Easy-Money.md

File metadata and controls

8 lines (5 loc) · 1.21 KB

Hard vs. Easy Money

The fundamental difference between hard and easy money is right there in the name. Easy money is money that can be created ‘easily’, while hard money requires significant effort to create.

Gold is the quintessential hard money. Locating, mining, and refining it is a difficult process, requiring significant effort to create. This results in a limited amount of new supply, which helps guarantee that the existing stock will always exceed the amount that can be created (the flow).

By contrast, the US dollar (and other paper or debt-backed monies) represents some of the easiest money. Since it can be created costlessly on a whim (or by fiat, hence its other name - Fiat money), there is no limit on how much can be created, or how quickly new money can be created.

The speed at which new money can be created directly impacts the ability of a money to hold its purchasing power. As new money is created (such as through the various COVID stimulus packages), the purchasing power of the existing money decreases. This is how we get inflation. So basically the harder a money is, the better it is at storing value through time. Easy money always results in an eroding purchasing power over time.