Inflation is Here, and It seems it's Planning on Staying a While!
Many people are completely oblivious as to what's currently happening with the U.S. economy. The Federal Reserve is printing money like there's no tomorrow. Inflation is increasing. Plus, people are making more money from unemployment checks than their day job, so they don't have an incentive to work. The U.S. economy is driving off a cliff with its foot pressed firmly on the accelerator.
Now, you're probably thinking, "We're in a crisis. All of this is financial assistance is completely necessary." That might be true. However, history has repeatedly demonstrated that good political intentions have unintended consequences.
Let me give you an example. Fifty years ago, Cuba introduced policies that created "equal pay for everyone" to reduce inequality. However, this was an economic disaster. Taxi drivers and surgeons were forced to be paid the same salary. And as a result of Fidel Castro's policies, nobody wanted to work. After all, they didn't have a financial incentive to show up and contribute to the Cuban economy.
Many people stayed at home or did the bare minimum to get by. So, it didn't take long for economic disaster to sweep the nation. Quoting an article published by the Guardian:
"He was responsible for the central planning blunders and stifling government controls that — along with the U.S. embargo — have strangled the economy, leaving most Cubans scrabbling for decent food and desperate for better living standards." Good political intentions to reduce inequality had unintended consequences. The economy slowed down, people often had no incentive to work, and high-skilled workers received meager pay. In retrospect, the collapse of Cuba's economy was inevitable.
Right Now, The U.S. Economy Is Falling Apart; Businesses are struggling to hire new people. And to make the problem even worse, some employees are refusing to show up to work. According to the U.S. Chamber of Commerce, one in four recipients of unemployment benefits is taking home more in unemployment benefits than they earned working.
Despite being a well-intended policy, the incentive for employees to stay at home could be devastating for the economy and people around the country. As Neil Irwin writes in The New York Times: Times: "It could act as a brake on growth and cause unnecessary business failures, long lines at remaining businesses, and rising prices."Look, I understand why many people are staying at home. They can make as much (or more) money watching Netflix and sitting on the sofa than working a tiresome job. I don't blame them. But if the current situation continues, the economy could collapse.
The reason? Supply chains are weak, and several parts of the country are already experiencing shortages of many products. Quoting an article published by the Washington Post that discussed the current chicken shortage “. Suppliers are struggling, just as many in our industry are, to hire people to process chicken, thus placing unexpected pressure on the number of birds that can be processed and negatively affecting the supply of all parts of the chicken in the U.S."
Basic economics dictates that a shortage in supply can increase the price of a good or service. So, labor shortages due to well-intended policies will result in higher prices at the grocery store. And coupled with the recent influx of trillions of dollars into the economy, inflation will inevitably skyrocket.
Unfortunately, There Are No Easy Solutions. Let's create a hypothetical situation in which the federal government decided to pay everyone's bills until the end of the Covid-19 pandemic. That way, every citizen and business owner could stay at home with their families and not work during a global health crisis.
On a surface level, that would be great. However, it would be a disastrous economic policy that would quickly destroy the U.S. economy. It would instantaneously throw the financial markets into chaos if the U.S. printed trillions of extra dollars. So, stopping all trade and business activity would cause the economy to come to a sudden halt.
That's what happened in Germany during the 1930s. The government printed loads of money to pay for all its problems. However, that caused inflation to skyrocket and the value of the German currency to collapse.
There are clear parallels to the current economic situation in the United States to 1930s Germany. If you think I'm misguided, I assure you that I'm not, as 35% of all U.S. dollars in existence have been printed since the Covid-19 pandemic began. Today, 5/20/2021, we had roughly 450,000 Americans file for unemployment for the first time, and we celebrated since it's the lowest we've had in well over a year; however, on any other given year, that number alone would cause a run on the banks.
The economy could be on the brink of collapse. Inflation is happening. Gas prices are increasing. Food is becoming more expensive. And unfortunately, there's no end in sight to the increase in the price of consumer goods. In laments terms cost of living is going up, and the value of your dollars is going down. And unless there's a drastic change in economic policy, the situation will inevitably get even worse.
In a world of new investment strategies, vehicles, and risk appetites growing ever more aggressive, I tend to be one that sticks to the historical fundamentals. Precious Metals have long been tested, and at any given time period in history, at any geographic location, to any given people, If you owned a backpack full of gold, you were rich, That same principle is just as much if not more so real in 2021. You may get dividends, as Buffet loves to point out. However, you don't end up with toilet paper either.