Inflation now becoming entrenched.

INFLATION FEEDS UPON ITSELF AND COMPOUNDS ONCE UNDERWAY

LOTS OF HISTORICAL EXAMPLES, BUT NEVER WITH SO FEW REMEDIES 

Yesterday we saw that inflation has risen to a 9.6% on a yearly basis. That is a very bad sign for the future economy. Once inflation becomes visible and recognized it begins to increase quickly as everyone tries to keep ahead of the the diminishing buying power of their money.

We see that we are receiving less than 1% on our savings, with inflation rising at the present rate our savings would be completely wiped out in little more than 6 years. What to do? We see that the only game in town is the stock market, were returns are excellent, but how high can it go until it blows up?

Interest rates have been artificially low since the real estate crash of 2008. That is now 13 years of abysmally low interest rates which have translated into high housing prices and a stock market boom, much of the increase a direct result of these low borrowing rates.

The traditional Keynesian cure for inflation is higher interest rates, but it may be that that cure is no longer an option. With a $30 trillion government debt and huge debts held by corporations, states  pension funds and individuals, higher rates may be off the table. This is a global problem not just here in the U.S. In the late seventies and early 80's interest rates were in the high teens, and I recall receiving 14% on CD's. I doubt that this will be an option today.

This latest inflation began with this administrations energy policy, which encouraged and demanded less production, less investment in new sources and a message that we are going to eliminate fossil fuels in the near future. Once fuel prices spiked, so did the price of everything that needs to be transported by rail, truck or plane, which is everything we use on a daily basis. Once these increases began they create a vicious cycle of increases, just to keep the margins needed to stay in business.

Coupled with that is an increase in programs from extended unemployment, child credits, increase in food assistance all which kept more people out of work, as they could get by without working or working less. This had the effect of cutting the ability of the economy to keep up the supply of basic products including food. This also results in increased prices.

We have already seen the increase in strikes and demands for pay increases which will still have a hard time keeping pace with an out of control inflation.

Covid also discouraged many to participate in the work force and kept some areas of consumer demand low. Many businesses have been struggling for 2 years just to stay in business and now inflation may be the final blow for them.

We have yet to see the real results of entrenched inflation. This is when people begin to hoard certain items that they perceive to be hedges against inflation.  This could be precious metals, whiskey, cigarettes, or even diesel or gas trucks. Whatever they think will be able to keep up in value to offset inflation. Re-estate may have already been on this track for some time and there seems to be lots of investment by hedge funds and other investors in real estate. The problem with real-estate that it is very illiquid and can decline in value quickly.

Then we have heard talk of government action, a great reset, where debts are eliminated, value of assets are recalibrated, money eliminated, only government banks and digital money. Withdrawals of savings taxed, assets taxes or confiscated and and an endless list of possible government action. Whatever the result it will not be a good time for the economy in the future.