Bill’s Blog | March 29, 2022
So what is inflation? Here are three simple definitions.
- The act of inflating or the state of being inflated.
- A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money.
- The rate at which the increase occurs is expressed as a percentage over a period of time, usually a year.
Source: The American Heritage Dictionary of the English Language, 5th Edition.
We are clearly in a period of many assets rapidly inflating, and supply chain disruptions persist. No, the war did not cause our severe current inflation; it has only contributed to it. However, there will be severe consequences the longer this war persists beyond the tragic loss of life and destruction in Ukraine. For example, food prices will rise even higher as Russia/Ukraine export 25% of the world’s wheat production, and due to the sanctions and the war, this supply will stop. The outcome will be food shortages in many countries. Also, many critical commodities come out of Russia, like nickel, aluminum, uranium, gold, oil and natural gas, fertilizer; these too will be blocked from trade. Here are a few key reasons why inflation is so destructive and what causes it:
- Inflation started decades ago when the US temporarily (LOL) took the world off the last vestige of a gold standard in 1971.
- The persistent increase in consumer goods (food, fuel, clothing, housing, cars, essential supplies and materials, key resources and commodities, etc.) happens while your dollars do not buy what they used to (decreased purchasing power).
- The Consumer Price Index produced by governments (CPI or CP lie, how inflation is measured) has not been improperly calculated since the early 1980s.
As a result, the actual inflation rate is higher than reported. It would measure double digits in most economies (think 15 to 20% or more) if calculated correctly. Here are several examples.
- Last year, housing increased by 20 to 30% in many Canadian and US markets.
- The costs of most foods and meats were up between 10 to 30% across the board.
- Oil (Western Texas) is up 95% from a year ago, and gas, natural gas was all in high double-digit inflation.
- The metal nickel used in all EV batteries and steel production shot up by 400% a couple of weeks ago in just a couple of days.
- Fertilizer used for grains has exploded by hundreds of percent and will cause food prices to further dramatically rise, or farmers will have poor yields without it.
- So, how can we have a 5% inflation rate reported by the Canadian government and in the USA 8%?
So why is this important for you to understand? What are the main factors that cause dramatic inflation? Then, I will provide actionable steps on what you can do (if you so choose) at the end of this Blog?
Firstly, inflation is not a factor of an accident but a planned and designed phenomenon that makes you and me poorer over time. We all feel artificially richer for a while as stocks and real estate inflated due to massive liquidity provided by Central Banks and distorting interest rates to historic lows from 2009 to the present. It all seems so incredible until things blow up again. The financial gurus who determine and create inflation (central banks) consistently declare we need ever-increasing debt and expansion of the money supply (both inflationary). This policy is flawed and creates enormous damage to the long-term stability of economies, nations, businesses and individuals, and the constant boom and bust cycles.
- Think 1970s with stagnation (little to no economic growth, high unemployment and wage freezes) and raging inflation.
- The 1980s ended with the Asian contagion and the Soviet Union collapsing in 1991 due to too much debt and corruption. Failed communism.
- The 1990s ended with the Dot Com boom-bust, and the stock market crashed by over 50%.
- The Great Financial Crisis of 2007-2008 with real estate and markets crashing worldwide as credit froze up. Have you ever wondered who gets wealthier from these boom and bust cycles? Let me give you a hint; the ultra-wealthy, mega financial firms, bailed out corporations, banks and central planners.
What comes next will not be pretty with the massive global debt levels of over 300 trillion dollars and growing (Governments, Corporate and Personal). We are overdue for another financial crisis, and the raging inflation is only making things worse for the average person or family! The cause is central planners and incompetent politicians who benefit from these policies at our cost. Governments run massive deficits to maintain control and power by overspending on everything they get involved with or pet projects. Central banks love funding these irresponsible debts, as they receive interest payments for every dollar they create out of thin air (think trillions of dollars over many decades). This rinse and repeat strategy is the perfect plan for the elites to maintain power and become egregiously wealthy. I am not against building wealth if you have followed me for a while, but not at the cost of hurting or destroying other people!
Now that you understand how the game works and that another major crisis is at hand, what is one to do?
First, pretending everything is fine is not a plan, and not having a well-thought-out strategy will significantly hurt your financial future. So here are a few ideas and insights to help you get through this increasingly unstable time with raging inflation.
- Truthfully, we have little control over inflation unless we collectively remove central bankers and power-hungry politicians who run these extreme deficits.
- Consider the over 650 billion dollars added to the Canadian national deficit created in the last two years (only 14% went to the covid issue), so where did the rest go????
- Many provincial Premiers/or US Governors have done the same thing, so there is lots of blame to go around—the destruction of empires and bankrupting countries has reoccurred 1000s of times and is nothing new. History is repeating.
- Politicians love inflation as they collect tens or hundreds of billions more in taxes.
- Another tragic example of entitlement and poor stewardship: Mr. Trudeau has given himself and his MP’s friends three big raises in the last two years. Most Canadians have deeply struggled through the pandemic, and now inflation only makes matters worse. Have you received a big raise? Here are a few solutions to consider:
- Step One: only vote for people willing to make seismic changes to our broken political and financial system and people who keep their word and are very fiscally conservative (meaning not spending more than the taxes that come in annually). We need smaller governments, less regulation (the useless kind), pro-business/innovation policies, and people who understand how to build the economy intelligently. We also need sound money and a return to a gold or silver standard where politicians have built-in restraints (well, because they can’t help themselves without them) and consequences for running reckless deficits.
- Step Two: Take personal responsibility for your financial well-being. Don’t look to others, and especially the government, to solve all of your financial issues. Yes, having good mentors or wise counsel is essential, but still, we must take 100% responsibility ownership for our wealth creation.
- Step Three: Develop a sound financial plan based on your current situation. Do you have too much debt? Then address the issue, stop the overspending and sell stuff and work toward becoming debt-free or minimal investment debt. Cut out all frivolous spending. You can cut hundreds or even thousands out of your monthly budget with little to no lifestyle changes. Downsize your vehicle to something more economical, or go to one. Stop daily coffee runs or lunches and make these things at home. Cut expensive entertainment costs like subscriptions/cable/movies/going out weekly. All these things are doable, but you need to take action and discipline your spending. Do you need more income? How are you going to achieve this?
- Step Four: Look at your investment portfolio and honestly evaluate it (you may need help), and ask, “will this strategy work in a high inflation world?” If you lose 50 to 90% of your wealth, there is no hero metal. A 50% loss can take a decade or longer to recover, and after the Great Depression, it took 25 years for the market to return to all-time highs. Be defensive and in assets that do well in high inflation (think commodities, gold, silver, oil, etc.). Is it imperative you understand market risks and make adjustments accordingly.
- Step Five: With all the severe issues in the world, make sure you look after your physical, emotional, spiritual and relational health. Stress is a killer, and you need to take this seriously. Maintain or develop a consistent fitness routine. Do a power walk with a friend or loved one for an hour daily, or find a combination of things that work for you. Avoid junk food and sugar. Shut off the TV, media, radio, internet news for an extended period to give yourself a mental break. Be kind to yourself, your loved ones and friends, and they are not the enemy of your stress in most cases. The things I am sharing, I do myself.
- Step Six: Prepare yourself for another shock to the financial system. We are in a war cycle, as I have shared several times. There will be ongoing and disruptive consequences like increased food shortages and refugee crises. Cyber attacks are increasing and may shut down significant parts of the economy (internet, power sources, banking, etc.) Be vigilant on the internet and not open suspicious emails or visit or download from unsafe sites. I have warned people that the current financial system is not sustainable for over a decade. There is a day of reckoning coming, and it is better to be one day early than a day late. So, be prepared to the best of your ability.
In conclusion, a major deflationary event will correct the high inflation (stocks, bonds, real estate and other needed goods unless shortages persist). Whether it is the rising interest rates, another deadly variant, or numerous black swans, deflation will eventually hit. Remember inflation is a cycle, just as deflation is, and no one can predict how long one cycle persists. In response to deflation, central banks will do massive new monetary stimuli and retrigger even worse inflation. Unfortunately, that, in my opinion, will be the most likely outcome. So prepare accordingly.
Look after yourself and your loved ones for the remainder of 2022. If you need any help, please reach out to me at: email@example.com or fivefoldfinancial.ca