So I have talked about it on my blog and it is the next boogie man to present itself which is great news for institutional media. They have to have something to scare you with, Trump is gone, Covid is clearing up (WATCH OUT FOR VAIRANTS!!!!!) and there are no wars so we get inflation. Should you be concerned about inflation? Yes, on a scale of 1-10? 3 -4. Inflation kills economies over the long term if (a big if) wages stagnate. If inflation is 3% annual and wages increase 2.5% annual your net to consumer is .5%. In one year that’s survivable. Over 10 years? That’s a problem.
Here are a couple of quick facts to remember about the current inflation situation in the U.S.
- The Economy was forced to slow down: We can argue why Walmart was open but local store X wasn’t, or why healthy people were precluded from doing what they want. We can’t argue that government closures and shutdowns due to covid had an adverse effect on production.
- Production decreased due to Item 1: Less cars were made, saw mills didn’t produce boards, ammunition production was decreased. And on and on…. The shutdown created a negative production situation as demand did not decrease concurrently due to government stimulus.
- Money still flowed: Yes, many people lost their jobs, but government printed money to subsidize those losses. So you had some money, or the same (maybe you worked from home) but you had less places to spend that money.
So what you have is companies forced to close and the economy slowed. This wasn’t part of the natural business cycle. As a result, less goods were produced, and people lost work, and government printed more money to get to those people. It’s the perfect scenario for short term inflation. Want another example? More people are on the roads now that things have opened up, gas prices go up. Why? Because refining gas was slowed during the pandemic because people weren’t traveling.
Again these are all short to mid-term issues which should begin to clear in the “new normal” my guess is by the start of the 4th qtr. (10.1.21) at the latest. Now anything can happen from now until then. A war, another pandemic, a massive oil spill, political upheaval so there are no guarantees. That said the underlying driver of capitalism is still very powerful, supply and demand. I want something, you have it we make a deal.
Inflation is the new boogey man, many of my younger readers have never experienced it or have read about it in the abstract in places like Venezuela or Liberia. It’s highly unlikely that, that kind of long term sustained inflation hits western economies because of supply and demand inherent in capitalism. Could it happen? Yes, if one of the 3 items on my list continues to happen, even in small doses. Don’t be pulled into the fear mongering, it is a click driver and most rational people can see that. Inflation is here yes, is the world ending because of it? No
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