The US inflation numbers: history repeating itself
The most recent inflation numbers for the US were much higher than expected, and stock prices fell as a result. This might seem like a surprising turn of events, but it's actually just history repeating itself.
The United States inflation numbers released yesterday caused a significant drop in stock prices. The S&P 500 was down 2% by the end of the day. This could signal a shift in the economy, and investors will be closely watching to see how the situation develops.
It's interesting to see how history tends to repeat itself when it comes to inflation. People generally believe that inflation is bad and that governments work hard to keep it under control. However, inflation often falls from the sky like some ancient plague. While governments struggle to control it, it will only go away when some miracle occurs or a hero arises to slay it.
The 1970s were a time of great change and upheaval. From the Vietnam War to the Watergate scandal, there was no shortage of newsworthy events. This was the narrative of the 1970s.
What is really going on is that governments create inflation to renege on their borrowings when those borrowings and promises and deliveries of entitlements are too much to bear. This results in a loss of faith in the government and a decrease in the value of the currency. This is something that should be stopped as it only benefits those in power at the expense of the general population.
If there is a war and debts get out of control, inflation will follow. This was the case in the 1980s, when governments flushed huge amounts of debt from the second world war. Now that there is sufficient distance from those events, the truth is finally being admitted.
The pandemic has created a financial aftermath that is similar to the Great Recession. The same medicine is being delivered, but it is not working. The economy is in a downward spiral and the government is not doing enough to help.
Every time governments have a problem, they reach for the same remedy: printing more money. This causes inflation and makes every problem look like it can be solved by printing more money.
It's clear that high energy prices and inflation are both major problems. However, it's also clear that one can fix the other. With high energy prices, inflation will disappear quickly during a recession. If Europe doesn't print 500 billion euros to calm the situation, they'll instead keep high energy prices and see general inflation with rising prices for everything else. However, the printing press is irresistible.
In my opinion, if we want to stop inflation from happening, we need to be more mindful about the money supply. Printing more money without an increase in the things we can buy will only lead to inflation. Therefore, we need to be more conservative with how much money we print. Additionally, raising interest rates or taking other measures to control the money supply may also be necessary to stop inflation in its tracks.
How hard can that be? I don't know about you, but to me that sounds pretty difficult. I can't imagine having to do something like that.
I don't think there is any easy way out of the current situation for many countries around the world. Growth and inflation are the only ways to get back to a balanced budget, and I don't see that happening any time soon. I think we're headed for some tough times ahead.
With politicians around the world seemingly addicted to printing money, it is hard to see inflation abating anytime soon. If they can be kept away from the printing presses, then inflation may subside in two to three years. However, if they continue to bail out voters with borrowed money, then inflation could become a very long-term problem.
There is no doubt that inflation is a problem that needs to be addressed. However, it is important to remember that the target rate for inflation is only a guide, and that the real rate can fluctuate depending on a number of factors.
Inflation is a problem that cannot be solved by high interest rates. Instead, what is needed is a lack of money at any price. This is something that can be achieved through fiscal and monetary policies.
It is my vision that governments will continue to print money to buy votes, and that inflation will go on for much longer than many people expect. I believe that we will see inflation crest followed by another period of inflation floating down to 2%, but that this will only be temporary. Once government debt to GDP is around 90% and the yearly deficit is about 3%, I believe that inflation will start to pick up again.
Investors and savers beware: the current economic environment is tough and ugly. While there are opportunities for those who are willing to take risks, the overall outlook is bleak. For savers, in particular, interest rates are low and are likely to stay that way for the foreseeable future.