The Fiat Trap:
Why Feeling Richer Doesn’t Mean You Are Richer

Escape The Clock Insights

We all know the feeling. You look at your bank account or your home value, and the numbers are higher than they have ever been. You feel like you are winning. But then you go to the grocery store, or book a vacation, or look at college tuition, and you realize that your money just doesn’t go as far as it used to.

It feels like running on a treadmill where the speed keeps increasing just to stay in the same place.

This isn’t an accident, and it isn’t just “inflation.” It is a fundamental shift in how our money works. Since the creation of the Federal Reserve, the US dollar has lost over 96% of its purchasing power.

In Program Management, we live and die by our metrics. We track the budget, the burn rate, and the ROI to ensure the project is on track. But imagine trying to manage a 30-year program where your budget automatically shrinks by 3% every single year, regardless of how well you execute. You could have the perfect plan and the perfect discipline, but if the unit of account—the money itself—is broken, the project is fighting a massive headwind.

We tend to measure our financial freedom by the number of dollars we have accumulated. But if the value of those dollars is shrinking every year, we are building our castle on a foundation of sand.

I recently sat down with Paul Musson, author of Capital Offense, to look under the hood in order to better tune our programs to mitigate the most complex risks of all–the system itself. Read on to learn why our money is constantly losing its value and what to do about it.

If the measuring stick you use to track your freedom is broken, your plan is just a guess.

Money vs. Capital: The Critical Distinction

To understand why the treadmill is speeding up, we have to look at the source code of the economy. The most common mistake we make in finance is confusing “Money” with “Capital.” We use the words interchangeably, but they are completely different things:

• Capital is real value: It is the output of your hard work. If you build a bicycle, tailor a suit, or provide a service, you have created capital. It adds value to the world.
  
• Money is just a claim check: It is simply the tool we use to exchange that capital.

When we focus solely on accumulating currency, we are playing a game where the rules are constantly changing against us. True financial independence comes from owning the assets that produce value, not just holding the paper that claims it. If you hold the paper, you are subject to the whims of the printer; if you hold the capital, you own a piece of the productive capacity of the economy itself.

In a healthy economy, money represents the work you have done. But in our current system, central banks can print money, but they cannot print capital. Between 2020 and 2022, the M2 money supply exploded by 40%. Did we create 40% more goods and services? No.

This is where the trap snaps shut.

When you flood the system with claim checks (money) without adding more coats to the cloakroom (capital), the claim checks become worthless. You aren’t creating wealth; you are diluting it. You are working harder to chase a currency that represents less and less actual value.

We are working harder to chase a currency that represents less and less actual value.

You can have an economy with capital and no money, but you cannot have an economy with money and no capital.

The Wealth Illusion: The Housing Trap

This distortion is most visible in the housing market. We look at Zillow, see our home value skyrocket, and feel like investing geniuses. But if we strip away the emotion, the data tells a darker story.

Consider a home bought twenty years ago that has increased in value by 4x. The house didn’t get four times larger. It didn’t move to a beach. It is the exact same house. The only thing that changed is that it now takes four times as many devalued dollars to buy it.

This isn’t wealth creation; it is wealth redistribution.

This phenomenon creates a barrier to entry that is nearly impossible to overcome through labor alone. If wages only rise by 3% while asset prices rise by 7%, the finish line for financial freedom moves further away every year. We are running a race where the track is actively lengthening in front of us, making it mathematically harder for the next generation to achieve the same security we did.

We are essentially locking in gains at the expense of the next generation. The “wealth” we think we have gained is actually just a transfer of value from the young family trying to buy their first home to the older generation who happened to buy assets before the printing press turned on. We feel richer because the nominal number is higher, but our actual purchasing power has stagnated.

We are witnessing a transfer of value from the prudent saver to the indebted state.

Building a Safety Net: The “Lunacy Hedge”

So, how do you protect yourself? If the value of the dollar is constantly eroding due to policy decisions you can’t control, you cannot just leave your savings sitting exposed. You need a safety net that operates outside of that system.

Standard advice says to diversify your investments. But in this environment, we need to go a step further. We need to diversify our trust.

Allocating a portion of your portfolio to hard assets like Gold isn’t about trying to get rich quick. It is about insurance. It is a store of value that cannot be printed. If policymakers continue to devalue the currency to solve debt problems, you need an asset that stands outside of that system.

Think of this allocation like the fire extinguisher in your kitchen. You do not buy a fire extinguisher hoping to use it, and you certainly do not check its value every day expecting it to make you rich. It sits there, silent and ready, so that if the worst happens, you have a tool that works when nothing else does.

This isn’t about speculation; it is about recognizing that if the system tries to inflate its way out of debt, paper assets suffer while hard assets hold their ground. Diversification is no longer just about buying different stocks; it is about diversifying your trust. You need assets that thrive when the system works, and assets that survive when it doesn’t.

Diversification is not just an investment strategy; it is a survival strategy against policy error.

The Hidden Risks of Index Funds

For many of us, passive investing via Index Funds is the default strategy. It is efficient and usually the right move. But we must acknowledge that in a distorted environment, even this strategy has a blind spot.

When money is cheap and easy to borrow, it keeps “Zombie Companies” alive—businesses that consume money rather than create value. In a normal market, these companies would fail. In our market, they survive on cheap debt.

This blind allocation breaks the fundamental rule of capitalism, which is that capital should flow to the most productive ideas. When we buy the index, we are not voting for the best companies; we are simply voting for the biggest ones. This creates a feedback loop where size begets size, regardless of actual performance or value creation.

By blindly buying the entire index, we are putting our hard-earned savings into these failing companies, too. We are essentially subsidizing failure because the price signals are broken.

This doesn’t mean we abandon the strategy—index funds remain a powerful tool for wealth generation. But it means we must be aware that the market price is not always a perfect reflection of value. A perfect mutual fund might mitigate this, but we aren’t mutual fund managers and don’t get to pick the funds. Additionally, we pay that person higher fees to do so, which eat into our returns. So, index funds continue to be one of the best options for generating wealth, but a little extra research to minimize how many zombies are in the population can help optimize that growth.

In a distorted market, a high stock price is not always a signal of a healthy company.

Life Is Happening Now

We track these numbers, obsess over inflation, and worry about the economy for one reason: We want to buy our freedom. But the greatest risk isn’t that we run out of money; it’s that we run out of time.

We often view financial independence as a binary switch: you are either working and suffering, or retired and happy. But a well-designed life is not about flip-flopping between extremes. It is about smoothing your consumption and your joy across the entire timeline, ensuring that you do not bankrupt your memories in the pursuit of enriching your bank account.

There is a tragic irony in the saver who denies themselves every small joy—like a simple vacation or giving money—only to pass away with a million dollars left in a bank account that their partner is too heartbroken to spend.

The goal of financial freedom is to live a good life, not just to hoard the most tokens. We must strike a delicate balance. We need to build a defense against the inflation that threatens our future, but we must also deploy our capital to enjoy the present.

Your net worth is just a number, but your time is the only asset that cannot be inflated away.

Learn More

The system is rigged to reward debt and punish savings. It feels unfair because it is unfair. But knowing the rules of the game is the only way to win it.

You don’t have to be a victim of inflation. You can choose to store your labor in assets that matter. You can choose to build real capital instead of just chasing paper currency. The currency may be broken, but your ambition isn’t. Stop chasing their paper, and start building your freedom.

Want to dive deeper? Listen now to my conversation with Paul Musson:

We can’t fix the Federal Reserve, but we can fix our own plans. The earlier we act, the less our money will lose value. So, don’t wait. The clock is ticking. Make your moves and escape it.

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