Part 2
Last week I posed the question; which is easier to fix? Is a recession easier to fix or is inflation easier to fix?
Thank you for all of the feedback I received. I had some unique and creative answers for sure! I hope the question stirred your thoughts on what’s currently happening.
I have lived through nine recessions, although I only remember seven. And there are debates about some of them actually being recessions. I have also lived through many different inflationary times. Who doesn’t remember gas and oil prices going berserk, including recently? Each of us could name numerous items where specific price increases have been horrendous and affected our lifestyles. I could cite many examples you have shared with me.
So, which is easier to fix, a recession or inflation? Of course, this is my opinion, the answer is a recession. Why? You can repair a recession by lowering interest rates and printing more money. That is called a loosened monetary policy. They can also apply fiscal policy to fix a recession. The government can create work programs such as building highways or repairing bridges. The government can ease income tax law. They can ease rules on businesses.
Inflation is much harder to fix. It requires a fair amount of pain and suffering by the American people before you can even begin to get inflation under control. It means potentially raising interest rates at every meeting that they have until they get inflation
under control.
A recession will cause you to lose your money. The positive choices are to build a strategy where you don’t lose money or if you do lose money, you can make it all back and then some when the government stimulates the economy.
Inflation destroys the purchasing power of your money forever. Inflation is ridiculously difficult to get under control once you’ve lost control of it. That’s why they are making such a big deal of the fact that it has been 41 years since we’ve seen this kind of inflation. Here’s the really bad news. Inflation will probably get worse before it gets better. The last time we dealt with inflation as dangerous as this, it took 13 years for our country to get inflation under control. Inflation raged from 1978 to 1990. It was horrific.
We do not have as many tools to fix inflation this time. I am repeating, but in order to get inflation under control, we would have to raise short term interest rates above 9 percent. That is almost inconceivable with $31 trillion of debt now and almost $45 trillion of debt by 2030. If the annual budget of our current government is around $5 trillion, 60 percent of the budget would be necessary just to pay interest on the debt.
Inflation is a way for the government to impose a “stealth tax” on the American people. This tax is imposed on EVERYONE. Rich, poor and middle-class people pay this stealth tax that the government imposes because they cannot live within their means. You will also notice I have not offered up many solutions. Getting inflation under control will be one of the most difficult things our government and the Federal Reserve will have to deal with going forward. There is no easy solution and inflation will cause great damage. Most Americans will see a lower standard of living in the future because of inflation.
So, that brings up another question. Which is more dangerous to the American people? They both are. They are both occurring at the same time. You are seeing the value of your assets decrease dramatically. And then, what remains, has dramatically reduced purchasing power.
Many Americans will probably never recover from what is currently happening and that number will increase if the recession takes hold and inflation solidifies itself in the American economy. I cannot stress this enough; this is a very dangerous time for the American people.
It is a difficult fix no matter who’s in the White House or Congress. It is likely to be painful for many. However, there are individual solutions that may be helpful that we can and should consider.
