Stagflation

Stagflation! 📈

One of my big concerns going forward is how much permanent damage the Coronavirus PAUSE will have to the economy. People say a choice between jobs and saving lives, which to an extent it is but it’s also much bigger than the with the possibility to effect future generations with high inflation and significant debt service costs.

Closing society down and putting everything on a credit card to save lives sounds nice, because nobody wants to lose their best friends, their mom and dad, their grand parents. But credit cards aren’t free, even if the teaser rate – forced by the federal reserve handing out cash to banks – we’re all going to have to pay for it eventually with higher prices through inflation.

Inflation on its own isn’t problematic but wage growth is relatively low these days and any inflation is likely to out strip growth in wages. In other words, it will impoverish the poor. Wealthier people with stocks and bonds – will do okay, as stocks and bonds are likely to beat inflation. Slowing inflation will require higher federal reserve rates which will reduce economic growth by making loans and houses more expensive and more difficult for governments to borrow. These effects could last years or even decades, long after the virus has burned through the population.

As tragic as the loss of life may be, I think we need to consider getting the economy up and going again so people can get back to work and the government can get revenue without printing money and further depreciating the currency – a policy that will only make the richer more rich and the poor more impoverished.