Inflation or Deflation?

There is an important debate currently raging between experts within the financial industry. Since it involves a question I’ve been receiving increasingly as of late I am going to address here.

The debate is whether we get significant inflation / falling U.S. Dollar or deflation / rising USD. It should be noted that there are very smart, successful investors, advisors, hedge fund managers and economists on both sides of the debate.

The recent year-over-year Consumer Price Inflation (CPI) prints have been quite high at 4.16%, 4.99%, 5.39%, and 5.37%. However, the bigger question we’re exploring here is if high inflation will be sustained for the foreseeable future or if the inflation is truly “transitory” as some policymakers are suggesting. Continue reading “Inflation or Deflation?”

Stealth Inflation Example

Inflation does not always show up in higher prices for the things you buy but often shows up in lower quantities for the same prior price.

Check out the paper towel quantity difference between these two rolls.

Image

Now, this guy circled the wrong thing but compare the square footage of each roll. The prior roll included 85 square feet of paper towel while the new one included just 74 square feet. So, in order to get the same quantity as before, you need to buy 14.9% more (i.e. 85 / 74 – 1 = 14.9%)!

If the cost was previously $1.67 per roll, and the new smaller rolls cost the same amount, the equivalent quantity today would cost $1.92 or 15% more! That’s a very SIGNIFICANT inflation rate especially considering this inflation is not solely impacting paper towel but likely many of the goods we buy on a daily basis.

Putting $6 Trillion “Stimulus” in Perspective

The most recent COVID relief bill was signed by President Biden yesterday. In one year’s time our government (two different administrations) has passed about $6 trillion worth of stimulus. We’re so used to “trillions” being thrown around I believe we’ve become numb to the mind-blowing magnitude of it all so I’ll try to put it in perspective:

  • $6,000,000,000,000 (that’s twelve zeros) divided by a population of 330 million is about $18,000 for every man, woman and child.
  • The average household is about 2.5 people (130 million households) so $6 trillion of stimulus is about $46,000 for every household on average. For our family of five, it’s about $90,000 (no, we didn’t get any of that).

Continue reading “Putting $6 Trillion “Stimulus” in Perspective”

Toilet Paper “Shortage” Solved

I’m again hearing stories of grocery store shelves emptied of toilet paper. Like many things in life, it’s actually a very simple problem to address but not always easy.

I’ve heard a lot of people exclaim how irrational it is that people are stocking up on toilet paper in response to this particular virus. But, I disagree. It’s actually quite rational.

After all, toilet paper doesn’t expire so it’ll be just as useful in five years as it is today so you don’t have to worry about buying more than you can quickly use since it doesn’t go bad anyway. Therefore, if you’re worried other people are going to raid the shelves it’s perfectly rational to want to get out ahead of it and stock up yourself ASAP.

This then leads to a cycle that feeds upon itself. As more people begin hearing stories of difficulty in obtaining toilet paper they rush to the stores and buy whatever they can get their hands on and the cycle continues.

The problem is with *PRICE.*   Continue reading “Toilet Paper “Shortage” Solved”

$27 Trillion National Debt and Counting, How It Gets Paid and Who Pays It

The debt of the US government recently crossed $27 trillion. Additionally, there are talks for another $2 trillion of stimulus (which the stock market is loving by the way). So, if passed, that would put the US national debt at around $29 trillion!

We should note that the US National Debt was about $20 trillion at this time in 2016. So, the debt was doubled to $20 trillion from $10 trillion (2008-2016) during President Obama’s two terms and looks to be on pace to double again over the subsequent two terms based on the increase thus far in President Trump’s first term.

A $29 trillion debt represents almost $90,000 per US citizen. That means a household with four people has about $360,000 as their share of the national debt in addition to their own private debt and their state and local government debt. Consider that total US household debt is about $14 trillion so that’s another $42,000 per citizen, or $170,000 for that same household of four on average.

Let’s consider what this really means. Continue reading “$27 Trillion National Debt and Counting, How It Gets Paid and Who Pays It”