Dec 12•3 min read
Inflation 7.1 Percent. Debt Spiral Continues.
Inflation Is To Damn High!
CPI numbers for November were released today, and they came in at 7.1 percent, which is lower than analysts expected. This is an encouraging sign that maybe, just maybe, inflation is trending back down towards the 2 percent target set out by the Federal Reserve.
Month-over-month CPI, which is more of an accurate gauge of what is going on in the economy, was only 0.1 percent. Economists expect a 0.3 percent increase and 7.3% CPI for the last 12 months.
As we can see, inflation is starting to cool off and is poised to keep heading down as long as interest rates stay this high. There is speculation that the Federal Reserve will raise rates another .50 percent on Wednesday. This will make it even more expensive to borrow money to buy a car or a house or spend on your credit card, which is unfortunate because millions of Americans depend on credit cards to make ends meet.
Credit card balances are up 15 percent or $38 billion over the last quarter. People are struggling to make ends meet, and increasing the interest rate on credit card debt will worsen problems.
What happens when people default on their home mortgages and credit card debt? This will have a cascading effect, just like we saw in the crypto industry over the last few months. In my opinion, throwing in tens of thousands of people losing their jobs is a recipe for disaster. Take a look at what's going on in the job market right now. Jobs cuts have spiked 13 percent to 33,843, according to Reuters.
Hard To Make Ends Meet
The people laid off no longer have an income to pay their mortgage, car payment, credit cards, or feed their family. What happens now? Sure CPI will probably continue to drop as more people are not working but at what cost?
When people are unemployed, they often turn to unemployment insurance, Medicaid, and other government assistance programs, which means more money is being spent by governments to help these people. These previously employed people were paying taxes and now they are not.
This equals less revenue for the government. What do governments do when they don't have enough tax revenues to finance operations? They borrow money they don't have at elevated interest rates, further exacerbating the situation!
The Federal Reserve hasn't solved the inflation issue; in my opinion, they shifted the problem to the government's balance sheet.
If you want my honest opinion, we are in a doom loop that is impossible to get out of. The debt is too big, and we are heading toward a currency crisis. The Federal Reserve will have to loosen monetary policy and let inflation run hot for years. It's either that or collapse the economy, which nobody in their right mind would do.
Inflation benefits governments with a large amount of debt because the debt can be paid back with dollars worth less than the dollars borrowed. It's all about time and the supply of money. If you understand that, you are ahead of the game.
The era of cheap credit is over, and high inflation is here to stay. On a personal level, the best thing you can do is take as much money out of the system as you can and store it in a money with a monetary policy set in stone and can't be manipulated by the Federal Reserve.
Bitcoin is our way out of this mess.
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