What ultimately determines wealth is your actual purchasing power.

Text Eleven Man Eleven Man said Reprinted with permission

Wen XI Chivalry XI Chivalry said

Reprinted with permission

What ultimately determines your wealth is your actual purchasing power. To put it bluntly, it’s how much your money can actually buy.

This point of view, in recent months there are two people at the same time in the speech, one is Li Lu , one is Dalio . But the context of the two people is completely different.

Dalio’s premise for saying this is to oppose the government printing unlimited amounts of money.

The government has no choice but to monetize its debt because it is being dragged down by debt, that is, to print money to pay off its debt by virtue of its sovereign credit, but the result of this is that the currency is devalued and all assets are subsequently repriced.

So, on the surface, the indices are all going up, the NASDAQ is going up, the Dow Jones is going up.

But the real question is, has your purchasing power actually gone up? And then has your real wealth actually increased?

The easiest way to understand this is to trade shells as currency, and initially there are only 100 shells on the market to buy 5 items. But if there are suddenly 500 shells on the market, then the price of the goods also goes up, because everyone’s currency becomes larger.

This is what happens when the money supply increases. Inflation erodes everyone’s purchasing power.

So, if the amount of things your money can buy doesn’t increase, then you’re losing wealth.

The context in which Leroy says this is how to secure your purchasing power, which is how you can secure your wealth.

This first requires us to have a clear understanding of wealth.

Li Lu says that true wealth is your share of the overall economy. As long as you maintain your share constant, you retain your wealth.

At this point, even if the overall economy’s cake shrinks due to factors such as war, your wealth does not actually decrease.

And if your share increases, perhaps your wealth is still increasing.

So, as an individual, you need to understand what is the value and what is the wealth that you’re really going after to protect and grow?

That’s your share of purchasing power in the economy.

And so, at the end of the day, all of your fiddling, all of your asset allocation, all of your investing, it’s all fundamentally aimed at preserving and increasing your purchasing power.

And the measure of your affluence, or the measure of your wealth appreciation and depreciation, is not whether you simply have more or less money, it’s the percentage of the economy that you’re in, not the absolute value.

One person is richer than another also because he has a higher percentage of purchasing power in the economy.

From this perspective, Leroy’s words can be seen as an addition to Dalio’s

1 The government must overissue money because of debt, and your purchasing power must be discounted with it, which means your wealth must be discounted with it.

2 There is only one way to crack this problem, and that is to use your knowledge and ability to make investments and asset allocations that will make up for these losses and gain.

So, these truths can also be seen as the asset logic of every one of us every family, that is

Fight asset depreciation, maintain wealth, and increase purchasing power!

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