Inflation and hard times: we're all in this together

 

I've written often about inflation and its perils, most recently twice this month.  As I pointed out earlier, we're facing an effective 30% per year inflation rate as consumers, and some of us in more costly areas are staring closer to 50% in the face - and there's no relief in sight.

That's making life very difficult for many of us, including yours truly.  Kim du Toit examines his own situation, and is Not. Happy.

It’s a little sad.  I’ve always wanted to be, or at least stay in the middle class.  Screw the Commies and their lickspittles who sneer at the “bourgeoisie” and their “bourgeois values”;  I’m proud to espouse those values, if they mean things like hard work, a modest lifestyle, good education and aspirations to, well, just live comfortably.

But it seems that recently ... I’m no longer in that class.  Instead, I’m now working class.  And the realization thereof came to me as I was reading this article:

If things are hard for you and your family right now, please understand that you are not alone. Most of the country is in the exact same boat.

No kidding. We are managing — but only just — to keep our heads above water;  but it’s becoming increasingly difficult to do so.

In a desperate attempt to maintain their middle class lifestyles, millions upon millions of Americans have been taking on debt like never before, and as a result we are now facing an unprecedented consumer debt bubble.

We haven’t had to resort to that, with some very small exceptions, simply because we’ve cut back hugely on anything we consider non-essentials. But as costs of everything, especially essentials, have rocketed upwards, what that means is that we can’t pay down our small credit card debt to the extent we want, to where we can pay them off altogether.

. . .

I’m telling you because I am not the only one going through this.  I can’t help feeling that there’s an air of desperation in the air, because if I’m feeling it, there are probably thousands, maybe hundreds of thousands of people in similar circumstances to mine.

There's more at the link.  Recommended reading.

The thing is, there is no short-term political solution to this.  Re-electing President Trump won't solve the problem, because Congress and the Senate are addicted to tax-and-spend policies.  Both parties, the Republicans as much as the Democrats, are to blame for the economic mess we're in:  and we, as voters and taxpayers, bear part of the blame, because we've benefited from their tax-and-spend policies and have therefore continued to tolerate, in some cases even enthusiastically embrace them.  Some of us (take a bow, Karl Denninger among others) have seen the current mess coming for years, and warned about it, but we're "prophets without honor in our own country".  People don't want to hear about coming hard times, and have turned away from common sense.

If you want to get a very cold, uncomfortable look at where this might end up, read "The Mandibles: A Family, 2029-2047" by Lionel Shriver.

I don't know why the cover-cited Wall Street Journal review of the book found it "a provocative and very funny page-turner".  It's anything but that to me.  The book is sometimes heavy-handed in its treatment of economic issues (Ayn Rand would probably have loved it), but its analysis of where we might find ourselves in five to ten years' time is absolutely in line with historical cases such as Weimar Republic hyperinflation, of which we've spoken extensively in these pages.  I don't like the book.  It makes me feel very uncomfortable, even threatened . . . but it's far more likely to be accurate in its predictions than many of the feel-good everything's-going-to-be-fine newspaper reports and opinion columns we see all around us today.

Folks, we're all in this boat, whether we like it or not.  Some of us are feeling the pinch harder than others, but we all are to a certain extent, and that's almost certain to get worse, rather more quickly than we'd like.  We have to face facts.  We can't shy away from this any longer, or pretend it isn't happening, or cling to the hope that all we need to do is vote harder and elect the "right people" to make it go away.  Things have gone too far for such an easy fix.

• We need to already be prepared as far as possible, and if we aren't, we need to get that way as quickly as we can.
• We need to plan ahead for our own economic circumstances, control our spending (and limit it as far as is possible), and put our savings into something that will hold its value rather than be inflated out of existence.  With effective inflation at 30%+ every year, and interest rates on bank savings accounts paying (at most) about a sixth of that, every day that passes means we lose money.  We - my wife and I - are putting our savings into things that will hold their value and be available when we need them, like emergency food reserves and other preparations for hard times.  Sure, we have an emergency fund, but we're watching its buying power shrink almost by the day.  That's a very uncomfortable reality - and there's the threat of confiscation during a banking crisis, as we saw a few years ago.  Put not your trust in bank accounts.  What's in them can be confiscated at the stroke of a pen, and used to pay off what banks owe.  It happened in Cyprus not long ago, and legislation has already been passed enabling so-called "bank bail-ins" in most first-world economies (including ours).
• Don't put your faith in precious metals, either.  For a start, you can't eat them.  Sure, they're a great store of value, and I own some for that reason:  but they're not my first line of defense against hard times.  Furthermore, they can always be declared illegal and confiscated by a desperate government.  They did it once before.  There's nothing stopping them from doing it again.
• Don't trust that your retirement savings will always be there, either.  Quite apart from inflation reducing their value at breakneck speed, they, too, can be confiscated.  There have been proposals to do so for some years now.  Want to bet that, as times get harder, those proposals won't get louder and louder?  I don't.
• Focus on the small things first.  Get out of debt.  Have enough of your basic needs (clothing, shoes, food, cleaning materials, etc.) to cater for your current situation, and put away more if you can to cope with unexpected emergencies.  Get fitter and healthier.  Be aware of potential security risks to you and yours, and prepare yourself as best you can to deal with them.  Only after you've got all of that right need you worry about the bigger picture, because there's nothing any of us as individuals can do about the bigger picture.

Friends, let's face reality, and deal with it as best we can rather than taking on more debt in a desperate attempt to maintain what used to be our standard of living.  Some will be able to afford to do that.  Most of us won't.  The sooner we face up to that, and start dealing with it, the better.

Peter