Why inflation isn’t going anywhere.

We all know that we are dealing with high inflation. And if you have half a brain cell you also realize that that the governments fake number they produce and I say produce intentionally, because it isn’t rooted in any kind of facts and data to support the number.

So what is inflation. In layman’s terms it is when you have too much supply, in this case, MONEY, chasing too few of goods and services. It is basic supply and demand that you learned in grade school.

When there is a high demand and high supply prices are stable. When demand is low and supply is high prices go down. And lastly, when demand is high and supply is low, prices go up.

Since we had so much money printed and put into the marketplace, we had way more money chasing fewer goods. And the pandemic caused fewer goods to be in the marketplace.

The actual definition of inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.

I don’t want to get too wonkish here, M2 is a measure of the U.S. money stock that includes M1 (currency and coins held by the non-bank public, checkable deposits, and travelers’ checks) plus savings deposits (including money market deposit accounts), small time deposits under $100,000, and shares in retail money market mutual funds.

Basically all the money in the market.

In 2019 we had $14.9 trillion dollars in circulation. By January 2022, we had $21.6 trillion dollars in circulation. See here the FRED information on M2 money supply. Also, look at graph below.

A little political point that needs to be made here as well. In 2020, when we were all faced with the pandemic and the world shut down. President Trump and our government printed money to help people because there were so many unknowns. However, not long after this happened many places got back to normal really quick and the one time Covid Relief money that was printed was plenty.

However, when Biden took office in January 2021, the first thing the democrats did was passed another Covid Relief Bill for an extra 1.9 trillion. Which we all knew at the time and we definitely know now, was unnecessary and many experts say that this extra spending added no less than 2-3 percent to the already higher than normal inflation rate.

So why isn’t the inflation rate going anywhere?

As you can see by the graph above, we still have too much money in the market.

Here are 4 reasons I say inflation isn’t going anywhere.

  1. Tightening monetary policy: One way to reduce the money supply is to increase interest rates or reduce the amount of money that banks can lend. This can reduce the amount of money available to consumers and businesses, which can help to decrease demand for goods and services, and can therefore reduce inflation.

    This has already been done. And inflation has come down some. However, things have already started to break and a reversal of these policies seem imminent.
  2. Decreasing demand: If demand for goods and services is reduced, then prices will tend to fall. This can be achieved through various measures, such as reducing government spending, increasing taxes, or implementing policies that discourage borrowing or spending.

    Our stupid government isn’t reducing spending anytime soon. They continue to want to spend more. Look at the current bills in Washington. Taxes may go up, but 49% of the population pay all of the taxes anyway. So until everyone is putting in their fair share, not much will ever change here.
  3. Increasing supply: If there is a shortage of goods and services, then prices will tend to rise. To reduce inflation, policymakers can work to increase the supply of goods and services, which can help to reduce prices.

    Increasing supply seems like the most logical thing to do. As I mentioned above, it really is that simple. It is basic supply and demand. Increase supply and if demand stays the same or lowers then prices will lower.

    However, the other monetary policies such as increased taxes and more government spending only prohibits private corporations from producing more. If it costs them more to make something, they aren’t motivated to make more of it.
  4. Managing expectations: Inflation expectations can be self-fulfilling, meaning that if people expect prices to rise, they may adjust their behavior in ways that lead to higher prices. By managing expectations and signaling to the public that inflation will be controlled, policymakers can help to reduce inflationary pressures.

    I am not going to pretend that sentiment in the market as a whole doesn’t have an impact, but to try and use emotions to drive a narrative that is basic economics (supply and demand) as I pointed out in this post. It doesn’t seem like managing expectations is going to do much.

I hate to be a gloom and doomer here, but your dollar is worth less and less everyday. You have to find a way to store your money in assets where you can preserve your cash or is helped by inflation. Meaning as inflation grows their value grows. Such as real estate, real assets, and precise metals.

To your success and your future.

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