Do you know what inflation and the recent college protests have in common?
They’re the result of institutional ouroboros — the snake eating its tail.
Watching videos of these encampments, you can’t help but wonder how much intellectual inbreeding must have occurred at these campuses to create special unicorns who pay $70,000 a year to live in their own reality.
Then again, you probably get the same feeling by watching Jerome Powell or Janet Yellen hold a presser.
When terrible ideas sit around long enough, people accept them as truth. They build on themselves until they metastasize into bigger problems.
According to the latest economic data, that may be where we’re heading.
The inability of the Fed to drive stability, accountability and confidence into credit markets may have pushed inflation past the point of no return…
…a place where 2% seems like a pipe dream and 3-4% becomes the norm.
Just imagine your savings being eaten away by inflationary pressures at double the historic rate for the rest of your life!
That’s not something most folks are prepared for.
And in many cases, it’s not something you can easily squeeze out a solution by just reconfiguring your investment portfolios.
But there is a solution.
Today, we’re going to dig into why permanent inflation has begun to seep into the economy.
Then, we’ll offer you a unique strategy specifically tailored to handle this problem.
The Real Inflation Story
It’s safe to say that inflation isn’t transitory.
Back when the Fed and Treasury thought the opposite, they blamed specific things like automotive supply, energy and housing.
The first two have largely leveled off.
And the third is finally showing signs that it might be slowing down.
Existing home inventory increased to 3.4 in March, compared to 2.9 months in the same month last year.
Anecdotally, Florida, the recipient of many U.S. immigrants, has seen a marked increase in the number of motivated home sellers as inventory levels rise.
Here’s the problem.
The “sticky Consumer Price Index (CPI),” which is the CPI less food, energy and shelter, is near 3.0% and rising.
Source: Federal Reserve Bank of Atlanta
Inflation isn’t constrained to just a few areas like they said it was. It’s broad and getting wider.
At the same time, real wages are declining.
Source: U.S. Bureau of Labor Statistics
That means we have less money to spend on goods and services that are increasing in price.
Traditional economists would have you believe that means people would buy less.
But there’s also a darker possible outcome.
Group-think
Behavioral economics wasn’t widely accepted until the last two-to-three decades.
Academics struggled to accept that investors and traders were not the rational creations they conjured up in their minds.
Yet, Robert Schiller’s work, which earned him the Nobel Prize in Economics, clearly busted this myth.
People succumb to herd mentality far more than you might think.
The longer we deal with high inflation, the deeper it becomes embedded in our lives.
People see prices rising and purchase goods and services now rather than waiting for prices to increase, effectively pulling demand forward and increasing inflation at a faster clip — kind of like an inflation short squeeze.
And it leads to one of two outcomes.
The first is hyperinflation. This is an unlikely scenario for the U.S. economy for too many reasons to list here.
The second, and far more likely, future is stagflation akin to what we saw in the 1970s, where inflation refuses to dissipate, while economic growth stalls and unemployment rises.
In many ways, stagflation is the worst outcome because it is exceptionally hard to break free of, especially with a government as deep in debt as ours is.
This is why Japan lost decades of economic growth starting in the 1990s.
Yet, even if this is our future, there are actions you can take to counteract these forces.
Solving the Problem
We will reiterate again… the best solution to this entire dilemma is to cut government spending.
This reduces aggregate demand AND our debt.
Will that happen?
Probably not.
And as we mentioned earlier, trying to squeeze more out of your current investment portfolio will only go so far.
So here’s our suggestion.
Inflation is eroding your buying power every day.
You need to create a reliable stream of income no matter what the market or the economy do.
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