3 things you can do to fix it.
2 years ago we were all shocked by the exponential growth of COVID-19.
We were also shocked by the exponential fall in the stock market.
We stayed safe and at home as the case numbers went up.
The Fed and U.S. Government’s last resort was to through money into the economy.
The Federal Reserve slashed interest rates.
The U.S. Government handed out money to businesses and to folks.
Then a vaccine came out and most of us got shots and cases came down.
After saving money, we spent money.
We splurged and this surge in demand helped the economic recovery and stock market.
Spending a lot of money caused havoc and it caused inflation.
Most Americans don't understand inflation.
Simply it’s too much money buying things when no one can build more boats overnight.
No one can throw money at the supply chain to get more goods on the store shelves.
Inflation is hurting companies’ earnings and it’s hurting low-income and middle-class income families. These families are complaining to their politicians and now inflation is political.
So what is the cure?
The Fed will raise interest rates.
What we can do to navigate around inflation?
We need to protect our assets.
We need to spend less than we make.
We need to do more with less.
Ups and downs are pretty extreme.
2021 tailwinds are growing into 2022 headwinds.
No one knows what 2022 will hold for investors and for business owners but the economic and financial landscape is shifting rapidly.
This will pass with time but for now, we have to stay within the locus of control.
Lastly, just a side note why this year will feel bad.
Most economic activity is measured in percentage growth terms and not nominal terms. Let’s look at the following example: If the government gives consumers $1 trillion to spend, it will boost GDP by at least $1 trillion. In this example, this means fiscal stimulus will boost GDP to $21 trillion from $20 trillion, equating to 5% growth. Without government stimulus and excluding any new economic activity, GDP will retreat to $20 trillion in the following year. As a result, GDP will decline by 5%. While nothing changed with the economy, the 5% decline will be considered a recession. To avoid zero or declining economic growth, again assuming no other activity, the government will need to provide at least $1 trillion and then some of the stimulus. As you can clearly understand, stimulus boosts economic activity. However, it detracts from economic growth rates unless it grows each year.
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