If you are 55 years or younger, you no longer know what it means when inflation takes our economy in check. It’s not just that you raise the price of everything. It is a recipe for killing the economy and will feed a black market and reduce the revenue that governments – local, state and federal – rely on to provide services.
I graduated from high school in 1973. The United States was about to major inflation crisis (I encourage you to read the article linked here):
This is the gruesome story of the great inflation of the seventies, which began in the late 1972 and only ends in the early eighties.8 In his book, “Long-Term Equities: A Guide to Long-Term Growth”(1994), Professor Jeremy Siegel, Wharton, calls it“ the greatest failure of American macroeconomic policy in the post-war period. ”
The huge inflation is attributed to oil prices, currency speculators, greedy businessmen and avid union leaders. However, it is clear that monetary policy, which financed large budget deficits and was supported by political leaders, was the cause. This mess was proof of what Milton Friedman said in his book, Money Damage: Episodes in Monetary History: Inflation is always ‘a monetary phenomenon’.
The big inflation and the recession thereafter, numerous businesses were destroyed and numerous individuals were injured. Interestingly, John Connally, the treasury secretary installed in Nixon who did not have a formal education in economics, later declared personal bankruptcy.
We do not just pay higher prices for food and gas. If you wanted to buy a house, you paid double-digit mortgage interest. If you now buy a $ 300,000 home with a down payment of $ 60,000, your monthly payment with a 3.8% is $ 1,401.63. What happens if the interest rate is 16%? You will pay $ 3,510.75. What do you think it does with the sale of homes? It kills the real estate market.
I had the misfortune to live in 1984 during an incredible hyperinflation in Argentina. Inflation raged at 1,000% annually. Prices of food and fuel and all the others rise during the day. If you bought an apple in the morning for 50 cents, you would pay 75 cents in the afternoon. Imagine that you are a small business owner who has to constantly price your goods. It’s a nightmare.
This period in Argentina was devastating for the middle and upper middle class. A dear friend was a baker. He provides pastries served on Aerolineas Argentina. Before the rise in inflation, he bought a new truck every two years. He lived in a house of 4000 square meters. His name was Alberto. He sold his home for $ 250,000 at the start of the inflation spiral to build a new bakery. When he completed the sale, the agent forgot to pay the land tax on the property he sold.
During 1984, he struggled to complete the bakery. He had to sell his beautiful Ford truck and buy a clunker. The price of glass, wood, concrete and tiles has risen every day. Alberto was like a man trying to stay afloat in Lake Michigan during a storm with concrete blocks at his feet. Eventually he completed the construction and started for business. But the cost of everything needed to run a bakery made it impossible for him to do business. He went bankrupt.
The worst news came at the end of 1984. He was informed that his tax bill on the land he sold was due. It is adjusted to compensate for inflation. He owes $ 260,000. This is what happened to the value of the Argentine peso in just one year. The tax on land costs more than he received for the sale of the damn house.
I visited Alberto in 2002. He lives with his new wife and three small children in an enclosed hut with an area of 1500 square meters and one bathroom. There was a hole in the wall that opened the bathroom to the icy air outside (it was August, which is winter in Argentina). Oh yes, he had no hot water. Try showering with cold water when it is 40 degrees outside.
I pray that we are not heading for such an inflationary rise. But the federal government is lying to you about the real inflation rate. You are told that it is just 5.3% tans. Yet this calculation excludes food and fuel. Do you think it is not worthwhile to determine the inflation rate? Take gas as a telling example. The price of gas has has increased by about 68% in the past year. This is not 5.3%. You see a similar jump in food. Beef increases by more than 30%.
If you have an interest rate with an adjustable interest rate, you should remove it as soon as possible. I do not know how high the real inflation rate is going to rise, but I do know that Joe Biden and his team are totally incompetent. The unrestricted spending by the Feds has sown the seeds for an inflationary wave that will dwarf what we experienced in the 1970s. I encourage you younger people to read and prepare. You do not want to quit like my friend Alberto. It was tragic.