The “I” word is mentioned everywhere these days. Print, talk shows, neighbors talk about it, and we are all bracing for it to be a long haul. In my world , besides food and gas increases, interest rates are now 2%+ higher than 9 months ago. A brother of mine in Montana who is a residential contractor told me a few days ago that a 2x6 board costs $14 and 2 years ago they were about $6.
And the experts did not see any of this coming… I suppose like the 2008 crises. Inflation ended 2021 5% higher than the forecasts predicted in the U.S. Also, this time inflation is global- over 5% in 58% of advanced economies and over 7% in 55% of emerging ones, according to the Bank of International Settlements.
Inflation is “mysterious” as Stansberry Research Dr. David Eifrig likes to say. Certainly supply chains, pandemics, and wars contribute, but “the root of all inflation issues Is that inflation is baked into the global financial system as long as paper currency has been used”. And we now live in a money printing world. In 10th century China credit notes were printed when the demand for coins exceeded the supply of metal to make them, and money printing was invented. Now, new digital or printed currency lowers the value of all existing dollars. Certainly, supply and demand are factors, but the trillions added to the money supply reduces the value of the dollars in your pocket. The result begs the question: is my house really worth 20-25% more than it was 2 years ago?
And every country’s currency is losing value too.
Another piece of info that is telling is the US’s percentage of debt to GDP (gross domestic product_- which compares what the government owes vs economic production. Now we are at 123% as of the fourth Q 2021. We owe more money than we produce, and we went over 100% in 2012. This impacts what middle America’s financial condition is, as now almost 2/3 of American’s live paycheck to paycheck, and higher inflation will cause more folks to live on a financial edge. And then growth is slowing too, certainly through the end of this year. The Atlanta Fed lowered their growth estimate to 0% for the first quarter. Consumer sentiment also continues to decline.
What to do? Consider: pay down or off debt- especially consumer debt, own hard assets like real estate, precious metals, and other tangible assets, owning shares in well run businesses that sell products that are essential-like food and fuel, and boost savings as much as we can. Remember, by paying down some debt frees money to pay down other debt, which is a form of compounding, just like the interest you earn on investments. The old Rule of 7- a dollar invested at 7% doubles every 10 years, and a dollar invested at 10% doubles every 7 years.