Gold and silver are up slightly on a weaker dollar. Safe haven demand increased after the Russian...
According to Forbes…
“Stagflation is a period of stagnant economic growth accompanied by persistently high inflation and a sharp rise in unemployment.”
Today, I would like to make the case that we are currently in – or very near to – an economy in stagflation.
Then, I would like to suggest a few things you can do to weather this stagflationary storm.
Is This Stagflation?
The definition of stagflation above is consistent with virtually every other source I could find. There are three components to stagflation…
Nothing screams stagnant economic growth louder than a recession or a depression. Officially, regardless of data, the declaration of whether the U.S. is in a recession is a subjective call made solely by the National Bureau of Economic Research. Oftentimes, the call is only made in retrospect months after the recession began.
The long-held definition of a recession, however, is two consecutive quarters of negative Gross Domestic Product (GDP). GDP contracted by 1.6% in the first quarter of 2022, and it contracted by 0.9% in the second quarter of 2022.
If it looks like a recession, talks like a recession, and acts like a recession… it’s a recession.
2. Persistently High Inflation
Despite the fact that the Federal Reserve and the U.S. government created the inflation, denied the inflation, claimed the inflation to be transitory, blamed others for inflation, and finally recognized that inflation exists… we all know inflation has been with us for over a year now.
It is high, and it is persistent. It is also not going away anytime soon.
We are at 40-year highs for consumer inflation. And although headline inflation came down from 9.1% in June to 8.5% in July, inflation is still 8.5% higher than it was a year ago. That is far from easing.
Producer Price Inflation (PPI) is at similar lofty levels, and that will continue to feed into and prop up Consumer Price Inflation (CPI).
If it looks like persistently high inflation, talks like persistently high inflation, and acts like persistently high inflation… it’s persistently high inflation.
3. Sharp Rise in Unemployment
I understand the headline employment numbers suggest the labor market is in excellent condition.
However, as our good friend Chuck Butler of the Daily Pfennig says, when you look under the hood, things don’t look nearly as good. Here’s Chuck in an interview he did with another good friend, Dennis Miller of Miller On the Money Monday, August 22nd…
“It’s a crazy mixed-up world we live in these days, Dennis. Just last week we saw the Bureau of Labor Statistics (BLS) print a 528,000 jobs created number for July…. But looking under the hood, I found that 340,000 of those jobs were created out of thin air by the BLS (they made up the number). That leaves only 128,000 real jobs created in July, and that would look like it should.
Each Month the BLS reports that 4.3 million people quit their jobs. I find this to be quite telling of the labor markets these days.
The pandemic, and subsequent economic shut down, has created a country of people that won’t work for minimum wage, won’t work long hours, and won’t work in an office, or restaurant, or retail store, etc.
That’s why you see so many HELP WANTED signs, people just don’t want to work any longer.
The Weekly Initial Jobless Claims have been ratcheting up in recent weeks and is beginning to look like it will explode higher very soon.
So, to sum it all up…. The employment situation in this country isn’t as rosy as the BLS or the Gov’t want us to believe it is. And all signs point toward very weak employment, during this recession that we are in."
If it looks like a sharp rise in unemployment, talks like a sharp rise in unemployment, and acts like a sharp rise in unemployment… it’s a sharp rise in unemployment.
If this isn’t stagflation, we are either close, or at a minimum, it sure feels like stagflation.
Dealing with the Worst-Case Scenario
I went from age four through age fourteen in the seventies. I lived through stagflation, but I didn’t appreciate how insidious it was. Thank God I had hard-working parents who both worked overtime to keep the pain from sister, my brother, and me.
Since then, I have studied the seventies, and I can tell you that stagflation is the worst of all worlds. In a nutshell, your assets fall in value at the same time as your costs for goods and services spike higher.
In other words, everything you need to survive costs much more, and you have less money with which to buy it.
Sound familiar?
That’s what we are going through right now, and I believe it will get worse before it gets better.
Here are a few things you might consider doing to weather the storm…
• Seek stability. Now is typically not the time to change jobs, change homes, or to make any other sweeping changes in your life. Predictability is key. The economy will provide plenty of variables and volatility. Add as few new variables to the equation as you are able.
• Analyze your spending. Unlike the federal government, we cannot let our expenses surpass our income. Identify what is a “want” and what is a “need.” Needs are purchased. Wants are replaced with savings.
• Establish or augment savings. None of us know with certainty how long this will last. What you do now may make a dramatic difference in the years to come. As Glen O. Kirsch told me when I first showed up at ASI in 1996… “Always pay yourself first.” Take a little out of each paycheck for savings in various forms. You earned it, and you are worth it.
• Store purchasing power. This is all about ASI’s mantra – Keep What’s Yours! Take some of that savings and buy real, liquid, stores of purchasing power such as gold and silver. As inflation soars, that ounce of gold will buy what it used to buy. Your dollar will not.
• Make your vote count. No amount of interest rate hikes will tackle inflation unless we start being fiscally responsible. I don’t care if your Senators and Representatives are Republican, Democrat, Undecided, Red, Blue, or Purple. If they keep spending more money than we have, we will all pay for it in the form of inflation… diluted dollars… lost purchasing power. Send them packing if they can’t balance our nation’s checkbook.
And lastly…
• Be happy. We have come through staggering stagflation in the seventies. I fully expect we will come through it again. Enjoy more simple things. Smile more. Help each other out. Work harder. Be better.
If we all do those things, I am certain we will come through this better off than we started.
We can help. Give us a shout… at 1-800-831-0007 or send us an email to put your plan into action today!
