Is the “S” Word Making a Comeback?
If I had a penny for every time I heard someone say that this “can’t happen here”, I’d be on the Bloomberg Billionaire Index within a year. No questions asked.
America is a fantastic country with a business culture that is second to none.
But it’s still a nation of men which comes with all of their attendant flaws.
Since the end of World War II, America has enjoyed unprecedented prosperity, which has made many Americans largely complacent about economics affairs.
During this period, there were several economic hiccups.
You obviously remember the 2008 housing collapse, the most significant economic downturn in recent memory.
But there’s another economic period in post-World War II America that had its own trials and tribulations and has particular relevance to the current economic predicament it finds itself in.
Let’s take a little stroll down memory lane.
In the 1960s, the US government went on a massive spending binge — the Great Society and the Vietnam War did not come cheap — as it tried to quell unrest on the domestic front while prosecuting an unpopular war.
Although the Civil Rights movement died down by the start of the 1970s and America eventually withdrew from Vietnam, things were never the same in America.
The next shoe to drop was President Richard Nixon’s decision to take America off the gold standard in 1971.
In doing so, America finalized its descent into a fiat-based monetary system.
Sprinkle in the Arab oil embargo, and you then had a full-blown energy crisis.
With time, inflation started to become a reality by the middle of this decade.
In typical boneheaded fashion, the government tried to fight inflation by using price controls.
On top of his disastrous decision to close the gold window, Richard Nixon issued Executive Order 11615 in order to “stabilize the economy, reduce inflation, and minimize unemployment.”
Despite being enacted to supposedly fight inflation and mitigate the effects of the Organization of Petroleum Exporting Countries (OPEC)’s production cuts, these price controls were not only ineffective in taming inflation, but they also created an entirely new set of problems — shortages.
Do you remember those long lines at the gas station that you saw in your American history books?
They weren’t random occurrences.
They’re the result of price controls, which prevent market adjustments.
You see, when prices are allowed to rise, oil companies are incentivized to produce more.
But when Big Daddy government steps in and slaps on arbitrary price ceilings, producers have no desire to bring more supply into the market.
However, consumer demand rises in response to this artificial price, thus resulting in a major mismatch between supply and demand, which manifests itself in shortages.
It’s basic economics, folks,
Well, the US economy continued floundering under the flaccid leadership of Jimmy Carter who did little to reverse the disastrous easy money policies and economic interventionism of the Nixon administration.
Americans eventually came to their senses during the 1980 election after they pulled the lever for Ronald Reagan.
Reagan’s sensible tax cut policies and deregulation measures combined with Fed Chair Paul Volcker’s decision to tighten interest rates, helped America escape the malaise of the 70s.
The 70s illustrated how easy money, shortages, and the burdensome regulatory structure created a nasty cocktail of economic stagnation.
Enter the “S” word.
By “S” word I mean stagflation.
Generally speaking, inflation is associated with an “overheated” economy.
However, this perception of inflation is a bit flawed.
Contrary to what your economics textbooks tell you, inflation is the product of expansions of the money supply.
And anytime the money printers go “brrr”, inflation invariably follows.
Indeed, this can occur against the backdrop of a sluggish economy like in the 70s.
It’s really the worst of both worlds.
On one hand, you get the sluggish economic activity associated with a recession.
To make matters worse, you see your savings go up in flames thanks to the hidden tax that is inflation.
So you’re probably wondering to yourself: how relevant is this in the present?
For the past year on my Creating Wealth Show, I’ve been predicting the rise of stagflation, and here’s why you should be worrying about the dirty “S” word making a comeback:
- State governments imposed lockdowns during the Wuhan virus pandemic that have done a number on supply chains, shut down business, and put millions of Americans out of work.
- Millions of Americans received generous unemployment benefits that kept them from re-entering the workforce. Many of these governments are on the verge of bankruptcy and likely looking for a bailout from the feds. To finance such largesse, the Fed cranked up its money printing.
- The Fed has ramped up the printing presses to allegedly keep the economy afloat, which will definitely make the prospect of inflation more likely. Remember, inflation is a monetary phenomenon.
You would think that America’s ruling class would have learned a thing or two from the stagflationary episode of the 1970s.
But we’re talking about politics here, so don’t expect much in the form of economic literacy.
After politicians decided to place millions of Americans under house arrest, and the Federal Reserve cranked up the printing presses, it’s likely we’re in for a repeat of the 70s.
Forget talk about a “V-Shaped” recovery.
We’d be lucky to just have short-term inflation.
To make matters worse, my suspicions about stagflation are being confirmed day after day.
According to a recent reports by the Labor Department, the Consumer Price Index (CPI) increases are on a tear.
Flawed as this index may be, it can serve as a proxy for the prospects of inflation.
And if you haven’t been living under a rock, you’ve probably noticed that your energy and food bills have been gradually increasing.
This is pronounced in America’s largest cities, where the results of inflation are most visible.
Couple that with the social insanity the ruling class is imposing on many Americans, you can see why many folks are relocating to the interior, where the cost of living is much more reasonable and the politics is not as crazy.
While most of these people don’t have a speciality in Austrian economics, their gut instincts tell them that something is off with the economy.
Nevertheless, gut instincts are not enough for you to thrive in this time of economic uncertainty.
As a subscriber to my list, you know full well the importance of planning and preparation when confronted with the realities of our clown show economy.
The most straightforward way to preserve your wealth when the going gets tough is through real estate.
Doubly so, in a time of inflation.
Inflation is obviously a blight on the economy and destroys the savings of many hard-working Americans.
But it does have a silver lining…for the real estate investor like you.
You see, inflation is a god-send for real estate investors.
You may be wondering how is that even possible?
Allow me to explain.
After acquiring a property, you then rent it out to a tenant.
By doing so, the tenant is the one who ends up paying the carrying cost of the mortgage……
…..all while the mortgage loses real value from inflation.
This is bad news for the banks, but great news for you.
More to the point, history shows that assets like properties generally appreciate faster than the rate of inflation.
Simply put, one man’s economic doom, is another man’s economic opportunity
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As they say, you’re the average of five people you surround yourself with. And at the Empowered Investor, you will be in good company.
While everyone will be slaving away at a “woke” corporation and living paycheck to paycheck, the Empowered Investor community will give you the tools to help you build a real estate kingdom.
We’re living in crazy times, but that doesn’t mean you should be completely on the sidelines.
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So, if you’re ready to use inflation to your advantage and build a real estate portfolio that will secure your financial future for years to come, you know what to do.
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