A lot is being made of the fears of rising inflation at the moment. Last year, a huge amount of additional M1 money was added into the US economy - and was immediately refuted by pearl-clutching and gasps from the cheap seats. This increase in monetary supply almost certainly gave a kickstart to the stock market - which has been rallying not stop since.
THEY CREATED THE INFLATION ISSUE!
Yes, they did. No one in the decision making process would argue that their intent was anything other than create inflation. Why? Because modern economies are driven on inflation. The risks of deflation far - far - outweigh the risks of controlled inflation. The economic landscape was already on edge leading into 2020; with some of the biggest sectors, such as retail, experiencing generational shifts from their customers. Things were already slowing. And then we added a pandemic into the mix.
If you had the money, April 2020 was a great time to buy 'stuff'. Retailers were practically throwing products out the doors to try and keep some sales coming through the registers. The only real exclusion from that was food & general needs; which were being horded like COVID created zombies. Entertainment and Real Estate also took big hits. As Work-From-Home started to pick up, the oil & gas industry ground to a halt (though, lay offs had already started in 2019...).
People weren't spending money. A LOT of people had lost their jobs; but worse - people who still had income just were not spending it. We've seen this movie before: The Great Depression. There are 2 generally considered useful ways to kickstart an economy:
In a situation where you are trying to keep people distanced, to reduce a pandemic, you can't really get a large portion of the population out into the public building things. So infrastructure spend needs to wait. So cold hard cash is the answer. The lowest wealth bracket don't stockpile their money for a rainy day. They use it to buy things they need, and maybe - just maybe - if you give them enough money, they might even upgrade something they own (assuming all their other costs are accounted for).
But in this political environment you can't just go around giving poor people money. So instead, everyone gets a kickback. And hopefully some of them put that money back into the economy - where it is needed the most...
BUT NOT EVERYONE SPENT IN USEFUL WAYS...
Chances are, if you are reading this, you are exactly who I am referring to here. Economies are built of the purchasing of new 'stuff' which required someone to put time into the creation of said stuff. We add up off the value that has been created, and arbitrarily decide how healthy an economy is based on that figure. What isn't included in that? Buying Stocks!
Putting your stimulus into $GME did nothing for the economy. Walking into a Gamestop and spending that money on new games would have been much better. And they would have retained their value better too...
Of course, there is nothing wrong with using every opportunity possible to improve your cash flows. But stock trading is a second hand market. None of this helps the economy - outside of the taxes that get paid on the profits.
SO WHY IS THE INFLATION NUMBER SUDDENLY JUMPING?
Things are starting to open back up. There are things to do, and there are a lot of people who either didn't spend their stimulus money - or were fortunate enough to have kept their income streams alive throughout the pandemic. There is a lot of money floating around and FINALLY things are opening up. People are spending. Exactly what should have been happening over the last 12 months.
So while the jump in inflation numbers is something we should absolutely be paying attention to; it needs to be considered amongst a longer timeline of underperforming figures. A few quarters of higher than normal inflation before it stabilizes will more likely than not help the economy. Because when inflation increases, that means there is demand for products. And when regulated effectively - that can only be a good thing.
The moral of this story is: Go buy something new, and preferably something local.
THEY CREATED THE INFLATION ISSUE!
Yes, they did. No one in the decision making process would argue that their intent was anything other than create inflation. Why? Because modern economies are driven on inflation. The risks of deflation far - far - outweigh the risks of controlled inflation. The economic landscape was already on edge leading into 2020; with some of the biggest sectors, such as retail, experiencing generational shifts from their customers. Things were already slowing. And then we added a pandemic into the mix.
If you had the money, April 2020 was a great time to buy 'stuff'. Retailers were practically throwing products out the doors to try and keep some sales coming through the registers. The only real exclusion from that was food & general needs; which were being horded like COVID created zombies. Entertainment and Real Estate also took big hits. As Work-From-Home started to pick up, the oil & gas industry ground to a halt (though, lay offs had already started in 2019...).
People weren't spending money. A LOT of people had lost their jobs; but worse - people who still had income just were not spending it. We've seen this movie before: The Great Depression. There are 2 generally considered useful ways to kickstart an economy:
- Give poor people money.
- Build stuff. Lots and lots of stuff.
In a situation where you are trying to keep people distanced, to reduce a pandemic, you can't really get a large portion of the population out into the public building things. So infrastructure spend needs to wait. So cold hard cash is the answer. The lowest wealth bracket don't stockpile their money for a rainy day. They use it to buy things they need, and maybe - just maybe - if you give them enough money, they might even upgrade something they own (assuming all their other costs are accounted for).
But in this political environment you can't just go around giving poor people money. So instead, everyone gets a kickback. And hopefully some of them put that money back into the economy - where it is needed the most...
BUT NOT EVERYONE SPENT IN USEFUL WAYS...
Chances are, if you are reading this, you are exactly who I am referring to here. Economies are built of the purchasing of new 'stuff' which required someone to put time into the creation of said stuff. We add up off the value that has been created, and arbitrarily decide how healthy an economy is based on that figure. What isn't included in that? Buying Stocks!
Putting your stimulus into $GME did nothing for the economy. Walking into a Gamestop and spending that money on new games would have been much better. And they would have retained their value better too...
Of course, there is nothing wrong with using every opportunity possible to improve your cash flows. But stock trading is a second hand market. None of this helps the economy - outside of the taxes that get paid on the profits.
SO WHY IS THE INFLATION NUMBER SUDDENLY JUMPING?
Things are starting to open back up. There are things to do, and there are a lot of people who either didn't spend their stimulus money - or were fortunate enough to have kept their income streams alive throughout the pandemic. There is a lot of money floating around and FINALLY things are opening up. People are spending. Exactly what should have been happening over the last 12 months.
So while the jump in inflation numbers is something we should absolutely be paying attention to; it needs to be considered amongst a longer timeline of underperforming figures. A few quarters of higher than normal inflation before it stabilizes will more likely than not help the economy. Because when inflation increases, that means there is demand for products. And when regulated effectively - that can only be a good thing.
The moral of this story is: Go buy something new, and preferably something local.