5 Reasons Why Inflation Won't Go Away In The United States
$300k is the new $100k in some major cities now. That trend will likely move to other areas as inflation worsens. These are five reasons why inflation won't go away, from rising costs to geopolitics.
The cost of living continues to rise while wages fail to keep up. That is not at all a surprise. In some cities in the United States, $300k is the new $100k. Don’t expect the cost of living to only be a problem in major cities. It will likely begin to creep into the suburbs and small towns.
SmartAsset recently found that $300k is the new $100k for your purchasing power. Your cost of living will only worsen, and you must find ways to increase your income to maintain your living standards.
If $300k is the new $100k, will $500k be the new $100k later this decade? There are five reasons to expect that a lower standard of living will continue for people in the United States.
Inflation
All roads lead to inflation in a society controlled by fiat currency.
The expansion of the money and credit supply are causes of inflation. The different types of inflation include:
Currency inflation
Credit inflation
Deficit-induced inflation
Demand-pull inflation
Another factor is when more dollars are chasing too few goods and services. Businesses will have to adjust their prices to deal with the inflation created by the expansion of the money supply. At the same time, fewer products are available to customers (stores going out of business, supply chain problems, et cetera). Other factors can affect inflation as well. The Federal Reserve contributes to inflation when it prints more money, i.e., quantitative easing. Credit cards have created cheap money that also adds to inflation. This is because people use the money they do not have (unless they pay their card off each month) to buy something they otherwise could not afford.
LendingTree reports:
“A November 2022 LendingTree survey found that just 35% of cardholders say they always pay their credit card balance in full every month, while 65% say they carry a balance at least some of the time. Nearly half (46%) of those cardholders who have card debt say it would take them at least a year to pay it off.”
Considering nearly half of Americans have credit card debt, the temptation to use credit cards is great. Credit card debt contributes to inflation, although they often are not viewed as a problem.
The Economic Times Of India explains how this works:
“In short, the chain leading to inflation goes as follows:
Merchant forces the distributors to increase their margins; Distributors put pressure on the companies; Companies inflate product pricing to improve the margins of all parties involved.”
This contributes to the inflation of the cost of everyday products to paying your mortgage.
Quantitive Easing
Quantitative easing is one of the policies of the Federal Reserve. In simple terms, it means that the Federal Reserve is creating more money to expand the money supply in the United States. It is considered an unconventional policy by the Federal Reserve despite it now being conventional. One of the contributors to inflation is the expansion of the money supply, as mentioned earlier. The Federal Reserve, and central banks, are responsible for this through QE.
They can print as much currency as necessary in a centrally planned economy. There is no limit to the amount of currency printed in a fiat system.
Currency Depreciation
The flip side of inflation is currency depreciation. However, they both work together to decrease your standard of living.
Below is an image from the Federal Reserve’s website. This chart demonstrates that the dollar continues to be devalued. There is no end until the currency reaches its actual value, zero.
The currency is devalued as more of it is created out of thin air by Central Banks. This then creates a lag effect. There is a lag period between when Central Banks create the currency/debt that must work through the economy and financial system.
As Central Banks continue to depreciate the currency, inflation will only worsen. Central banks are less afraid of inflation compared to deflation.
Rising Cost Of Living
There is also the problem of the rising cost of living in the United States from renting, purchasing a home, healthcare, and the cost of necessities to live.
Rent has continued to go up in cities in every state, according to Forbes.
LendingTree reports that the average home mortgage made through its platform in 2022 was $333,342.
Statista visualizes that the United States has the most expensive healthcare system in the world at $12,318 per capita.
Health insurance costs have risen an average of 4% over one year but as high as 20% in some states.
In 2023, car insurance rose as much as 14%, according to Bankrate.
Due to the other problems that contribute to inflation, there is no reason not to expect inflation to rise more. Geopolitics also plays a more significant role as countries work to leave the dollar hegemony.
BRICS And China
“Every night I ask myself why all countries have to base their trade on the dollar.” - Brazilian president Luiz Inácio Lula da Silva
The BRICS are creating a geopolitical problem by challenging the dollar hegemony. The BRICS are also challenging the unipolar world dominated by the United States. It is even starting to get in the news by the mainstream media on sites like MSN.
The countries of Brazil, Russia, India, China, and South Africa make up the BRICS. More countries continue to be added, and Mexico recently stated that it is considering joining. These countries are directly challenging the status of the dollar.
More countries are interested in finding an alternative to the dollar: Argentina, the United Arab Emirates, Algeria, Egypt, Bahrain, and Indonesia.
The chart above shows that the United States continues to be viewed unfavorably by more countries. This incentivizes other countries to go elsewhere, and China is becoming that new option.
This irreversible trend is becoming a problem for the United States. Yet, the United States is responsible for creating this problem by angering countries with its world police foreign policy. The United States has also weaponized the dollar against countries to maintain power as the global reserve currency.
The move toward de-dollarization is another critical factor that will decrease the demand for the dollar. The consequences of reduced dollar demand will continue to devalue the dollar, which will result in higher inflation for Americans.
China
China is now working to bring peace to Ukraine while the United States continues to send money and weapons to Ukraine. China is becoming a rising power that other European countries are beginning to rally around. The image below from Pew Research Center is how other countries viewed the United States after the covid pandemic. The situation has only worsened for the United States since then, with more countries gravitating toward China.
The Chinese yuan is another competitor to the dollar. As China gains more economic and foreign influence, the yuan will become another alternative to the dollar. The yuan could become another option.
Saudi Arabia is considering selling oil in the Chinese yuan rather than in dollars. The first contract that Saudi Arabia transacted a few weeks ago in Liquified Natural Gas (LNG) with China. This is a test to transition away from pricing oil in dollars to move away from the United States.
The BRICS and China are becoming potential alternatives to the dollar that so many countries want to find a way to leave.
Returning Dollars And Treasuries To The United States
When countries finally have an alternative to the United States dollar, it could be one or more currencies. They will then begin to send back their dollars and treasuries to the United States. Remember that part of the definition of inflation is the expansion of the money supply? That will happen once the overseas return to the United States.
China sold $31.3 billion in US debt from December 2022 to March 2023, and China sold another $46.2 billion in US debt.
The United States no longer produces anything. It only exports bank notes or dollars. This good deal can only go on for so long for the United States and the American people. It is estimated that nearly 60% of banknotes are held overseas. Those are more dollars that can eventually return to the United States to increase the monetary supply.
4 Solutions
Increase Your Income
You can start by finding ways to increase your income. The traditional way to make money has been to move up in a company. There are now many other options for that due to the Internet. You can start small with a side hustle or hobby that could later become your main gig.
You could also learn how to start and run your own online business. You can create your own website or Substack. You can build up an audience across social media platforms. The best part of having an online business, even though it comes with its own difficulties, is you can find ways to continue to increase your revenue. This means that you can make more money for yourself once you can cover the basic costs of your business.
An online business also provides you with more flexibility. You don’t have to be stuck working in the same place. You could move to another state or country to save more money. You could then reinvest the money you would have spent in your more expensive home country into your business or another project or asset.
Hard Assets
Hard assets have a track record of performing best during inflationary periods. Some hard assets include:
Owning a business (physical or online.)
Products and services.
Real estate.
Precious metals (gold, silver, platinum, palladium, and rhodium).
Investing in commodities.
Land.
Move To A Less Expensive State
You could move to a less expensive state if your company allows it. You could also apply for jobs in a less expensive state. If you work remotely or are a freelancer, this likely won’t be a problem. You may need to check the company you work for policies if you are a remote worker.
Move To A Less Expensive Country
While the dollar remains the world’s reserve currency, moving to a less expensive country can allow you to enjoy the dollar’s reserve status while it remains. You will be able to experience a better lifestyle for less. If you can work and make money online, this becomes an even more attractive option.
You can also get a second passport and residency in another country. A more sophisticated approach is called five flags. It is up to you to determine how much political diversification you want from your home country.
If you can live part-time or full-time in another country you enjoy, this is another option worth considering.
Secure Single’s Algorithm recommends:
Summary
The United States is a declining empire. It has the hallmarks of a falling empire if you honestly look for it without rose-colored glasses. Due to the combination of geopolitical issues that directly challenge the dollar's status as the world’s reserve currency to inflation, Americans are experiencing a lower standard of living. That problem will only become worse if the dollar loses its reserve status. The good news is that there are solutions that you can do if you want to improve your situation and find ways to prosper during this time.
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