“Never forget that no government has wealth of its own to spend. The money has to come from taxation, monetary inflation, or debt expansion that must be paid later. And government’s spending choices will always be uneconomic relative to how society would use that wealth. That is to say, the money will be wasted.”– Llewellyn Rockwell
People wonder why I talk about inflation so much.
Honestly, it’s partially because I think this is a unique time.
It’s definitely one of the most unique times we’ve had in the last 50 years.
You can take advantage of inflation.
That doesn’t happen every day!
I believe inflation is here to stay.
It will take years for the Federal Reserve to get the numbers under control.
You’re seeing the pain everywhere.
We see it when we’re filling up the pump,
We see it at the store.
We see it everywhere.
If you look back at the 70s and early 80s, you see inflation was high.
At one point, interest rates and inflation were close to 20%.
The numbers didn’t get down to 5% until 1985.
If you look at the history, inflation is not transitory.
It’s here to stay.
And if you’re prepared, you will be able to take advantage of it.
1. Why Inflation Will Stay High for Years!
Inflation will stay high for years.
But how did it get this way?
Milton Friedman, the great economist, said inflation is anywhere and everywhere.
“a monetary phenomenon” that has to do with how much currency you create.
If you create more currency, you’re going to eventually get more inflation.
COVID-19 exacerbated this even more.
Supply and demand heavily affected how many goods and services were created.
The government has created a lot of new currency.
40.9% of new currency was created from February 2020 to February 2022.
So you’ve got more money chasing fewer goods and services.
That is a recipe for high inflation, and it’s going to be perpetual for several reasons.
Peter Zeihan wrote a book called The End of the World is Just the Beginning.
He talks about the rise in nationalism that we’re seeing in trade wars and beyond.
What we’re experiencing now in the world may never happen again.
At some point a war could break out, and all of a sudden, this free trade and international travel may not exist in the way it does currently.
That will reduce the supply of critical goods.
In the U.S., we’re asking how we’ll get goods outside of China and other countries.
How can we create goods ourselves or get them from other partners?
This is getting more challenging and will lead to higher costs.
2. The Fed is About to Reverse Course
I believe the Fed is about to reverse course.
This is not a popular opinion, but I believe it to be true.
According to this chart, the Feds will raise rates for about five months before they’ll start lowering them again.
You can see the longest stretch was 13 months.
At the time of this video, we’re about 9 months into the Fed raising rates.
It’s just a matter of time before rates fall.
A recession can be a tipping point for that.
Single family housing is also impacted by this.
We’re seeing a lot of assets that were booming start to slow down.
There’s higher inflation.
There are higher asset prices.
When rates start lowering again, asset prices will go up.
That’s one way to think about it:
When you buy real estate, your buying price is fixed, but your interest rate can be adjusted later.
That’s possible through refinance.
If you’re paying a 7% interest rate, what’s gonna happen in three years if rates are down to 4%?
People wish they had bought real estate.
That’s something to think about!
Jay Powell wants to be Paul Volker.
Volker was the head of the Federal Reserve back in the 70s and 80s.
He took rates all the way to 20%.
By bringing interest rates that high, he broke the back of inflation.
Paul Volker did say before he passed away that he could not raise interest rates to that level again in the common era.
The debt to GDP ratio at the time Volker was raising rates was 33%.
That means there was 33% debt for how much our whole country produces.
Now we’re above 100%.
It’s projected to go over 200% in the next few years.
How is that even possible?!
You can see on this chart that we’re looking at continual growing debt.
If debt is that high and rates stay high (or go higher), the debt becomes unmanageable.
They eventually will have to start lowering rates again.
3. How to Use Inflation to Your Advantage
Inflation is here to stay.
The Fed will reverse correspondence.
Now, what can you do about it?
I wrote an eBook called How to Use Inflation to Your Advantage.
It talks about using real estate.
You can buy assets that pay you to hold them.
Inflation and rents go hand-in-hand.
If you’re buying assets that have rents, particularly multifamily or larger deals, they will allow you to weather anything that happens in the economy.
Using good debt is another way you can use inflation to your advantage.
I’m not talking about credit card debt.
I’m talking about the debt that comes from buying great assets.
If you can borrow for a long period of time at a lower rate, you can buy assets that will appreciate.
That’s very valuable!
In general, you should prepare for inflation being here for a long time.
Inflation will eat up more of your dollars unless you have a plan to deploy it.
A lot of people I know are saying they’re not going to invest.
They want to wait it out.
Shadow stats says inflation is not 8% or 9%.
It’s actually 15% to 18%.
If inflation is that high, it means you’re losing 35% to 40% of your wealth over the next two years if you sit on cash.
This doesn’t mean you’ll see a reduction in your accounts.
It just means that $20 will be worth a lot less than it was before.
Now I want to hear from you!
How do you store wealth?
What are some things you do to take advantage of high inflation?
Let us know in the comments!
Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.
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Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.