Many Americans are unprepared for the impending economic catastrophe. And it all boils down to one word: inflation. In essence, it’s the rate at which prices for goods and services increase over time. Or, put more simply, as the inflation rate goes up, the value of your hard-earned dollars goes down.
Now, you’re probably thinking, “this won’t affect me. I’ll be fine.” You won’t. Because unfortunately, inflation isn’t something you can ignore. Plus, history has repeatedly proven that inflation can spiral out of control and cause economic disaster for millions of people.
Let me give you an example. During the 1920s, The Weimar Republic (the German state) was going through a period of extreme instability. So, the government started printing loads of money to pay for all its problems.
The influx of money into the economy caused inflation to rise extremely quickly. And as a result, the currency lost a large percentage of its value. To put things into context, a loaf of bread cost 250 marks in January 1923. But by November, it cost over 200,000 million marks. The vast majority of citizens saw their wealth disappear within a very short amount of time. Food shortages became widespread. And since many people were desperate to survive, crime rose dramatically.
Sure, I’ll admit the financial collapse of the Weimar Republic was almost 100 years ago. So perhaps you’d prefer a more recent example of an economic disaster caused by inflation. From the 1950s to the early 1980s, Venezuela was one of the wealthiest nations in Latin America. But when the oil price collapsed, the country’s leadership tried implementing various policies to restore economic stability. They didn’t work. A shortage of food supplies quickly led to widespread riots and an exponential increase in crime rates. Reports emerged of people digging through garbage to find food since they were unable to afford it. A prosperous nation quickly deteriorated. And it can, and will, happen again.
Right Now, The United States Is Sleepwalking Towards Economic Disaster
I’m empathetic to the fact that the Covid-19 pandemic caused a massive strain on people’s finances. And obviously, the stimulus packages were a lifeline for some. But the road to hell is paved with good intentions. And unfortunately, a sudden influx of money into the economy will have unintended consequences. Quoting an article published by Forbes:
“Trillions of dollars in unprecedented government spending helped keep the economy afloat during the pandemic, but experts are worried that extra cash and pent-up demand could cause problematic inflation — and tank markets — once the pandemic subsides. Bank of America and Morgan Stanley are among the Wall Street investment banks that have warned inflation — and not the pandemic — is now the biggest risk to stocks.”
Many people will remember the devastating impact of the financial crisis in 2008. So, if the stock market collapses again, the impact on people’s livelihoods could be devastating. For example:
- Lower stock prices can devastate pension funds, causing you to have less money for retirement.
- Research published by the World Economic Forum shows that economic downturns are commonly associated with increased suicide rates.
- Falls in stock prices could lead to banks making significant losses. Known as a Credit Crunch, a shortage of funds will result in them being reluctant to lend money to people for mortgages and loans.
Contrary to what you might hope, none of this is fearmongering. According to CNN, “Worries about sudden inflation spikes are keeping investors and economists up at night.” After all, prices for goods and services have recently seen the sharpest monthly climb since the 2008 financial crisis.
Here’s a graph that shows the percentage increase in consumer prices:
Gas prices are going up. Groceries are becoming more expensive. Plus, utility bills are also increasing. Or, put simply, as inflation continues to increase, you’ll have less money in your bank account to provide for your family.
So, What Can You Do?
Pay attention to what banks, billionaires, and financial institutions are doing. Because chances are, they have a better understanding of the economy than you do.
Many investors around the country are turning to traditional commodities such as gold. For a long time throughout history, it’s been viewed as a safe hedge against rising prices and inflation. And according to Investopedia, “As economic conditions worsen, the price will (usually) rise. Gold is a commodity that isn’t tied to anything else; in small doses, it makes a good diversifying element for a portfolio.”
Another common investment hedge against inflation is real estate. As Dani Lynn Robison writes in Forbes, “Inflation hedge investments are typically assets that are expected to increase, or at least maintain, in value over a period of time. This plays into three aspects that make real estate a great tool to fight inflation: appreciating value, increasing income (rents), and depreciating debt.”
It’s also worth noting that some banks are incredibly bullish on cryptocurrencies such as Bitcoin. After all, the long-term increase in price and adoption from institutional investors makes cryptocurrency worth considering for a diversified portfolio. Quoting an analyst from JP Morgan:
“Cryptocurrencies derive value not only because they serve as stores of wealth but also due to their utility as means of payment. The more economic agents accept cryptocurrencies as a means of payment in the future, the higher their utility and value.”
History has repeatedly proven that inflation destroys thriving economies and devastates the livelihoods of ordinary citizens. Great empires rise and fall. The dollar is already decreasing in value. And sooner or later, the United States will inevitably reach a period of decline.
Whether you like it or not, inflation is destroying your financial future. Day by day, it’s eating away at the value of your hard-earned money. And as prices increase, you’ll have less money in your bank account to spend on the necessities of life. So, if you’re not already learning about money, investing, and the stock market, start now.
Disclaimer: This article is for informational and entertainment purposes only. It should not be considered financial or legal advice. Consult a professional before making any investment decisions.