Sunday, February 13, 2022

Inflation 2022: Craziest Inflation Advice EVER!!! But, Worth Reading

*Background: As anyone over the age of 40 expected, the real estate market has pushed back on two years of government regulations by gobbling up properties and turning them into rentals. The banks that finance such profiteering are absolved of any wrong doing by lending money to businesses without direct connection to individual transactions.   These are the methods that England used to wipe out the Irish and Scottish people that would come to Americas for a better life. They are the ways used during Reconstruction to further punish the South and it is the path of hands-off leadership that lead to the not quite so romantic days of the Roaring '20s with its high crime rate and out of control stock market.  

Now in a position of collusion with insurance companies, property owners, brokers and builders, these industries use computer generated statistics to elevate property values and justify rising rates.  Believing the government will again and again  bailout the industry, they are unconcerned about a second housing crisis and stock market crash.  What our capitalistic society fails to remember is that, at some point, the law of supply and demand is offset by the sheer ability to pay.  No amount of socialized income can satisfy the greed of those who believe they are entitled to more.  Entitlement is an attitude that infects all social strata, gender and religious backgrounds.  It causes abuse of the elderly, wipes out wealth with a single lawsuit or telephone scam and allows members of Congress to amass wealth by pushing programs which aid some but hurt many. Families must realize they have the power to say "NO!" in a loud voice, without protests or fighting and in an effective way that gives rise to fresh start for this country. Save rather than Spend. Avoid the Stock Market and be satisfied with security rather than the promise of a comfortable retirement.  It might be old-fashioned but relying on either party, Republican or Democrat, is the biggest risk to the American family.


sShhh!  This financial perspective is different than those offering "sound advice" about how to deal with the growing inflation problem.  Truly, some will think it is CRAZY! In reality, what so many economists and planners fail to remember is that the vast majority of American citizens make less than $100,000 a year and hey cannot afford to lose even on penny to inflation or stock market corrections. 

Gained from the experience of trying to start a family during the last inflation run in the late 70s and early 80s, this advice is meant to protect the family's cookie jar emergency fund as well as putting skids to inflation in a way that the federal gover nment cannot.  Consumers have all the power. I told you it was CRAZY! 

What is Inflation?

Technically, inflation is any time the price of something goes up AND the customer is willing to pay that price.  Inflation is not some theoretical given that is like the sun rising every morning. Inflation only happens when people are willing to pay the increase. It can be controlled. The interesting part of today's financial advice is that no one tells consumers that they are in control.  WHY? Because then companies would have to dip into profits rather than pinch pennies. Besides inflation looks like economic growth when election season comes around.

It wasn't until the Great Recession that those who lost big in the previous 30 years realized that people do not have to automatically respond to inflation by pinching pennies and doing without.  Instead, they learned to take control of their finances and not wait for a government bailout which would never come.  Rather than start spending and buying on credit which was what consumers were advised to do, this last recession lasted longer as a result off consumers controlling their spending. Even with war and natural disasters, inflation was held at a very low rate.

What Causes Inflation?

Any increase in money in the marketplace can cause inflation. It can happen locally when a large employer gives a big raise that coincidentally covers an increase in insurance. It can also happen nationally whenever there is a tax cut, spending bill or war which keeps government spending more than it takes in (romantically called printing money which was what independent banks did during the 1800s)

Interestingly, the last time the federal government had a budget surplus was during the Clinton administration with a national debt of $5.6 trillion dollars.  Since 9/11, every administration has had a war, financial crisis, natural disaster or other reason to pump money into the economy.  Today, the estimated $29 trillion dollar national debt is approximately 6 times what it was since 2000. This is the biggest cause of inflation. **Apparently Nancy Pelosi is coming out against this assessment in order to rally public support for a modified Build Back Better spending plan. She does not live paycheck to paycheck.

Like the period between, 1965 and 1982, this round of inflation has been coming for a while. It started with the War in Afghanistan, was fed by the housing crisis in 2008 and then topped off with the Trump tax cuts intended to boost the stock market and big business. The Pandemic's generous stimulus policies coupled with business closures were just too much disruption for the economy to absorb.  Now with the promise of a $1.2 trillion infrastructure bill and possible large spending bill on the horizon, only consumers have the power to keep inflation down.  It's clear the economy is more important that working America.

Curbing Inflation the Family Way

Consider this information before making any financial decision in the near future.

1. Always Pay Your Rent or Mortgage - No one bails out the individual family.  The moratorium on mortgage and rent payments may not be working out the way it was supposed to during the pandemic. Banks and real estate are big business, not community members like they were a hundred years ago. Even in the Great Recession there was little help for people behind on rent and mortgage payments. Make this a priority or move to a cheaper location. 

2. SAVE Rather than INVEST - Wherever there is a boom there is a bust and the only money that is secure is that which is kept in a Federally Insured account (FDIC).  What investment bankers fail to tell you is that you can lose as much as you put into a stock based 401K or mutual fund. They also do not tell you that one out of every four years (since 1980) has been a loss year.  Pension funds change. Employee stock options can be worthless. Only insured savings accounts limit inflation and risk.  Remember the stock value of a bankrupt company is close to zero.  Saving and paying down debt can give just as much of a net return as investing in high risk stocks.

3. Cancel Automatic Payments of All Kinds - We all have them.  Those online accounts and monthly or yearly subscriptions and payments that are just easier if the company takes care of them. Except that it's a good way to overspend. It doesn't matter what they are for--streaming services, charitable gifts, memberships or warranties, these costs drain money when you might need it for something like rent.  No one is saying to stop giving or watching--just change the way you pay for them with a cash limit debit card. Disconnect from you primary bank account and load money onto your payment card each month as you can afford it.  That goes for utilities as well. Only use your bank's payment system and follow a budget. Better to miss a month at the gym than lose your home or car.  

4. Reduce Insurance Coverage - The insurance industry has had a tremendous few decades and it has managed to use guilt and fear to keep families buying coverage amounts far greater than most need. Deleting duplicate and add on coverage you don't need (towing or rental when you have three cars at home) and raising your deductible can reduce costs without reducing the important coverage.   Contrary to what might be believed, it is unlikely that lawyers will go after cases which have little chance of payout. In other words, you increase your chances of being sued if you carry large liability policies or have big investment accounts. Check your policy regularly and do it online which is where more details are available. You may find that the company has "protected??" you by increasing coverage beyond reasonable amounts.

5.  Avoid Bulk Buying - This sounds counter intuitive but bulk buying leads to increased waste and encourages inflation by stressing he supply chain.  Buy only what you need. Part of the inflation mindset is to buy it now because it will cost more tomorrow. Costs will go down ONLY if consumers buy just what they need at a fair price.

 6. Pay Attention and Use Your Voice - Over the last two years, companies were more or less free to do as they wanted. Insurance and technology companies revamped policies and services. Manufacturers cut product lines. Start paying attention to what is different and accept you might have to look harder to get what you want. Read the bill BEFORE you pay it and ask questions. Evaluate products fairly rather than being nice especially on stores such as Amazon.  Complain to regulator and consumer protection agencies when a company has less than excellent customer service. The Better Business Bureau, Federal Trade Commission, state licensing bureaus and Federal Communication Commision, all, have online complaint forms.  Be specific and give details.  Standing up to a company can make the price go down quickly and it only takes one complaint to alert upper management that something is wrong locally.  Inflation is as much about consumers having confidence in their own powere as it is about actual cost increases.  

Recently President Joe Biden was asked WHEN WILL INFLATION STOP?  With the government stimulus packages just now ending, it is too soon to expect inflation to go down but a drastic change could come in as little as three months if consumers take charge and spend wisely. 

There is a difference in the way the President is handling the economy. While both Republican and Democratic leaders are clinging to old ideologies and solutions. Biden might be looking to do something unique and different.  Could restoring money to the Social Security Fund be in the cards or a balanced budget that doesn't constantly need influxes of cash?  Could the federal government treat all states equally for a change? Could federal regulation make sense to more than the 535 members of Congress?   Its hard to tell what the future has ahead of us. 

All the same, working families need to be prepared for what may come. They will survive as long as they pay attention and do what is best for the long haul.