Why inflation isn’t over:
Why inflation isn’t over.
Inflation is a silent killer.
Slowly destroying your purchasing power.
Making every dollar you earn worth less and less every day.
That’s what our governments have done.
Particularly since Covid.
Let’s use a simple example.
Say there was 100 dollars total in circulation.
You earn 50 cents.
Most things you buy are worth pennies.
Life is pretty good.
Now, imagine the government printed an extra 100 dollars out of nowhere.
But you’re still earning 50 cents.
Or let’s say 75 cents.
You may think you’re richer.
But, now everything you used to buy for pennies is now worth 10 cents.
Your dollar’s value has gone down.
Your purchasing power has gone down.
Your quality of life has gone down.
When incomes don’t keep up with the pace of inflation, people who rely on their labour as their main source of income can’t keep up.
That’s what’s happened broadly across the world since the 70s.
Since Nixon took the world off the gold standard in 1971 and we went to a fiat currency system, labour has lost.
If you work a job where most of your money is based on income, your life was way better in the 70s and 80s.
Even before the 2000s.
However, as inflation has increased, your wages have not kept up.
Meanwhile, capital has grown exponentially.
Look at any asset value since that time.
Houses.
Art.
Stocks.
Anything.
Any asset has exponentially increased past the value of inflation in the last 50 years.
Capital has won.
While labour has lost substantially.
That means if you didn’t own assets decades ago, it’s impossible for you to afford them now.
Look how bad the housing crisis is for my generation.
People who have saved for a decade in a 2 income household can’t afford a basic home in a city.
Meanwhile, our grandparents generation used to afford a house after saving for a few years while working at a factory.
That world has disappeared for us.
But here’s why it’s a bigger problem today.
Many in the media are saying inflation is done.
That’s wrong.
The rate of inflation has gone down considerably in the last few years.
But that’s only half the story.
Prices are still going up.
They’re just going less up than they used to.
So when governments say the inflation rate fell to 3%, the price of everything is still increasing 3%.
It’s likely higher given they changed the definition in the last few decades.
Ask anyone who’s been to a grocery store in the last few years if food prices have only gone up a few percent.
Watch this video of this guy ordering the same thing from Walmart over 3 years.
He’s paying double or triple what he used to.
IN 3 YEARS.
Why is this a huge problem?
Because his wages haven’t kept up.
So now more of his income is going towards food, energy and housing than it was before.
Families are struggling.
They can barely afford food.
Barely afford their mortgage.
Barely afford to survive.
Enter Jerome Powell.
While inflation is still lying dormant, he cut rates.
Meaning he made money easier to borrow.
This is only going to increase prices even more.
If you own stocks, real estate or assets, you couldn’t be happier.
If you’re working a regular job, you’re screwed.
The financial media and media more broadly believe inflation is done.
I say it’s just getting started.
We’re back to the decade of the 70s.
For those who don’t know, go study it.
We had two inflation spikes.
That was mostly due to a Middle Eastern war where Israel was involved.
Funny how history rhymes.
That sent the price of oil through the roof and ruined the world economy.
Don’t be surprised if that happens now.
But it’s not just that.
Labour workers are striking.
Look at the port strike right now happening across the US.
Companies are re-shoring.
Bringing their supply chain away from cheap places like China to closer geographies like Mexico.
That’s expensive.
The cost of commodities is going up.
That means the cost of everything goes up.
Look at what central banks are doing.
Powell has cut rates.
Meanwhile, the US debt keeps going up and up.
This means they’re printing more money.
China has injected liquidity into its system as its banks are failing due to its collapsing real estate.
All this means inflation goes higher.
Your purchasing power goes down.
The rich get richer.
While the poor get poorer.
But the issue is not them.
It’s the middle class.
History has shown us that if enough of the middle class gets too poor where they can’t afford food, energy and housing, you have a huge problem.
That’s the path central banks have picked.
Don’t be surprised if we have uprisings, civil wars and revolutions in the next 5-10 years.
We’re headed down that path.
As Charlie Munger said ‘inflation is how democracies die.’
Don’t be surprised when they get tested in the next few years.
Especially in the centrepiece of it all - America.
Those are some of the reasons why inflation isn’t over.
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