What Will Happen Next
“The price of tram rides and beef, theatre tickets, and school, newspapers and haircuts, sugar and bacon, is going up every week. As a result, no one knows how long their money will last, and people are living in constant fear, thinking of nothing but eating and drinking, buying and selling.” — Eugeni Xammar, Spanish journalist in Berlin, February 1923.
What’s worse than an all-out financial collapse? We’ve spoken a lot about economic collapses on this channel, but there is something worse than an all-out collapse hitting America and the world, and it is worsening by the day. It’s inflation. Typically, inflation is contained in one country or a group of closely intertwined nations. Normally, we don’t see inflation coupled with so many external forces coming together in a perfect storm- pandemics, lockdowns, an energy crisis, supply chain disruptions, and so forth. This isn’t the first global inflationary crisis, but it is the first with these modern fiscal controls, exchanges, and an intricately woven global supply chain. The inflation we are about to see worldwide is unique, and even expert economists readily confess they have seen nothing like it and cannot accurately say where or how it will end.
You have to realize that global inflation will mean more than just paying a dollar ten for the same goods that you paid a dollar for just a few months before. An inflation threat at this level has the potential to alter the economies of nations fundamentally. It threatens every aspect of our world from food, to land ownership, to government stability, to retirement plans, to simply surviving. Here we will explore how this inflation isn’t local to your country but a global problem right now, how we don’t have the tools to avert it, what is going to happen, and what you still have a little time to do to encourage your survival through it. Let’s explore what’s going on…
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A GLOBAL PROBLEM
Though many would turn their finger of blame on Biden, Merkel, Johnson, Macron, Putin, Jinping, Morrison, or insert the name of your leader here, the inflation crisis we are facing is much broader than one leader’s mismanagement. It’s much more significant than one country’s failings. It is far less contained and can’t be confined, this time, to one country’s or one region’s borders. Global inflation is so bad right now that many leading economists are revising their long-term projections and bracing for an extended, worldwide economic decline. It’s worse than expected and hasn’t yet been fully realized. Some economies around the world will likely fail as a result. In any massive economic shift, as we see here, there will be winners, and there will be losers.
To massively oversimplify what inflation is to understand it better, basically, climbing prices results in lower purchasing power. It’s the same basket of goods or the same service, but now it costs more, and you make the same or less, as some businesses make up for the loss of profit by slashing worker wages. Typically, inflation is measured using the Consumer Price Index (CPI). This is a standardized group of goods (food, shelter, energy, and other items) that provides a baseline for comparison. Every single index has been steadily rising. The energy index alone has risen 24.8% over the last 12 months. One of the most ominous indicators that an enormous inflationary storm is brewing on the horizon is that inflation is usually confined to one country or group of economically intertwined companies. That’s not the case with this storm. Even before the current supply chain and energy crisis, global inflation was projected at 3.5%– A number that is woefully in need of correction just a few months later. In fact, Trading Economics data from last month put the G20 nation’s average inflation rate at 7.66%. Even if you take out the troublesome economies of Argentina and Turkey, the G18 remaining countries average almost a 5% inflation increase.
No matter where you live, you likely are already feeling the effects. Gasoline in the US is up over 30% since the beginning of the year, and natural gas prices in Europe have soared 400%. The CPIs for over 100 countries worldwide are up just over the last quarter. The cost of everything is going up, carts are getting smaller, and the world still struggles to find its economic footing after the lasting effects of COVID.
AN EMPTY TOOLBOX
Typically, to ease inflation, the Federal Reserve would simply raise rates to stave it off. Because the government has borrowed so much, increased debt, printed so much money, and kept rates forced low for so long, there isn’t anywhere they can turn. The toolbox of tools to control inflation is empty. If the Fed were to raise rates now in an already staggering economy struggling to get to its feet, bond prices, housing prices, stock markets would all falter, possibly even collapse.
When the US defaults on bonds because the interest is too high to continue rolling over into debt and the country’s credit rating is slashed, a spiraling collapse starts moving and accelerating. For years, the Fed’s only tool to fight economic collapse was to lower rates and fuel the debt party. You can’t take the patient off the ventilator if he can’t breathe independently, yet there are no more tools available. So, most governments worldwide are simply holding onto their chairs and bracing for the wild ride in hopes of discovering some, as yet unknown off-ramp or in the hopes that the current gears and valves all maxed out will hold up under the strain.
Again, though, this isn’t a uniquely American problem. Natural gas prices have soared 400% in Europe this year as they brace for a brutal winter. China refused coal from Australia and massively ramped up its production, causing prices for coal to plummet. That would be great, but most developed countries have been moving away from coal for decades, so the lower coal prices do them little good. Global supply-chain issues from labor to raw material shortages to shipping containers, port traffic jams, trains, and truckers persist. While it does appear that most of the world is emerging from its third wave of the Coronavirus and the numbers of vaccinations is increasing, some countries like the United Kingdom, Russia, Germany, Poland, and the Netherlands still struggle to get their numbers down. Corporations will seek to maintain profits by slashing labor and passing costs to consumers. The world is under a dark cloud of an inflationary storm, the power of which remains unknown. Any individual country’s efforts to alter the course, tweak their economy, or insulate themselves, aren’t enough to change their fate.
WHAT CAN YOU EXPECT?
HOUSING
The shelter index indicates that we are about to see increases in rents and houses skyrocketing in price, especially in suburban and urban settings. But don’t think you can sell high and buy up cheap farmland because the cost of farmland is going up as the wealthy and corporations snatch it up as part of their portfolios. The current consumer faces poor job opportunities that require extensive experience or education while wages have been stagnant for over two decades. The everyday consumer faces ever-increasing healthcare costs and these higher rates of inflation. The cost of building a home has gone up considerably. For every six homes constructed right now, ten families are looking to buy a home. The shelter inflation rate in the US is up, and it’s up 26% in Canada. Housing in some major cities around the world will become out of reach for the average person. Corporations seeking to secure stable investments are in direct competition with consumers. At the current rate, investors will one day own most homes because land ownership remains the tool for the rich to stabilize their portfolios in turbulent markets. For more on that, see my video on why Bezos, Gates, and Turner are now farmers. I will link to that at the end of this video.
Expect the number of homeless to increase. Expect to see more people engaged in the van life, moving into micro homes and apartments, trying to buy land, or setting up a homestead. If you aren’t in a home already, expect prices to continue to increase and will likely become out of reach for the average consumer in the not so distant future. Expect that many will have to move in with extended family, friends or make some other group cohabiting plans to find a livable situation for themselves. Suppose the real estate bubble never pops, as many leading economists are beginning to realize, because institutional investors with deeper pockets continue to buy up homes away from average consumers. Let me repeat this last point because it’s important you understand. Many in this community are anticipating the housing market to burst similar to 2008. But an even worse scenario that is playing out is that house prices are increasing rapidly as corporations are finding that houses provide a reliable cash flow when yields in the typical investment markets are diminishing. In that case, many will be forced to rent, downsize, or find themselves on the streets even while some investor-owned properties are vacant. As governments turn to higher tax bills and prices go up, how long will some who are comfortably in their homes now reach a point where they can no longer afford their tax bill? You will start to hear more stories of regular people who have lived in their paid-off homes for years, losing their homes in retirement to taxes.
