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Inflation and the Economy
398 Plays4 years ago
Sometimes the complexities of the economy seem too much to understand let alone react to. But as entrepreneurs, business owners, and even just citizens, understanding what drives inflation and other economic activity (and sometimes more importantly, what doesn’t) is key to creating and sustaining a path of opportunity and stability.
This week Bryan and Phillip talk through the nature of inflation and how an economy built upon debt will inevitably drive towards it. Understanding these concepts well will give you the ability to not only take wise personal action as these inflationary cycles wax and wane but will also provide the right context for you to use your votes, voice or investment to influence local, state, national and global policies that impact the economy.
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Transcript
Defining an Uncommon Life
00:00:02
Speaker
Everyone dreams about living an uncommon life, but how we define that dream is very different for each of us. And for most, it's a lifelong pursuit. Welcome to the Uncommon Life Project podcast.
Meet the Hosts
00:00:14
Speaker
We're going to introduce you to people who are living that life or enjoying the journey to get there. We're going to also give you some tools, tricks, and tips for starting or accelerating your own efforts to live an uncommon life.
00:00:27
Speaker
A life worth celebrating and savoring. Please welcome your hosts, Brian Dewhurst and Philip Ramsey. Hello and welcome everybody to another episode of the Uncommon Life Project where I am your host, Philip Ramsey. I am Brian Dewhurst. Thanks for tuning in. Your voice sounds a little different there on the internet. Well, it could have been a little radio voice. I don't know. You get it too.
00:00:50
Speaker
Thanks for tuning in. We're grateful that you took time to listen to this.
Understanding Inflation
00:00:54
Speaker
This is just gonna be Brian and I talking about inflation, talking about economy. You may fall asleep. Try to keep this brief. Keep saying your words, keep saying your words. No, so Brian obviously is probably gonna take point on this. Let's just be really honest. But if I feel like there's some place where we can maybe talk a little bit more or I actually get intrigued, we'll dive into it.
00:01:18
Speaker
Again, man, inflation's real. I'll just say that. That's the big buzzword. We wanted to address it and talk about it directly. I appreciate that because if people aren't, we got a problem. So we always want to be those people that address it. So where do we start? Well, I want to start with inflation in the sense of where does it actually come from? Because what you see on TV, people are paying for it to be there.
00:01:44
Speaker
Like there is a narrative that is being concocted right now. And I'm not going to point fingers at our president, but I'm going to point a finger at our president. Inflation is not coming from Putin. And that is a lie.
00:01:57
Speaker
So I wanted to spell that, and that is not where inflation is coming from. It may be a factor, but it's not the source. It's a contributing factor, but it's not the, if there's a pie chart of what percentage of inflation is coming from Putin and what percentage is coming from- It's not the blaring big one that you want to eat. Yeah, it's not 100% Putin, as much as I love it to be that, because I think he's in the wrong over there.
00:02:23
Speaker
You know, whatever. It doesn't matter.
From Gold to Dollar Standard
00:02:25
Speaker
Inflation comes from the money supply. Period. The way our monetary system is designed is inflationary. Period. That's it. Why? Why is it? So I think Bitcoin is a great thing to juxtapose this to. Or you could say gold. We could compare all three. Let's go gold because it's a little longer. So let's do gold.
00:02:48
Speaker
The reason gold is money, and the reason gold was money for 10,000 years, is because the supply of gold only grows one to 2% every year, which is inflationary, if you think about it. If the supply of something goes up over time, that's inflationary, period. And so the reason that a commodity-based currency
00:03:16
Speaker
seemingly didn't work is because we didn't want to work the system. The politicians and the globalists and the big business people that ultimately made the decision to change from gold standard to the dollar standard in 1913. Right. Are you going to say they didn't want to go to the mountains and get it out of the... Well, yeah. So when you look at when you're on a fixed conversion, so our monetary system was on a fixed conversion. So a $20 bill equaled an ounce of gold. That was a fixed
00:03:45
Speaker
currency or a fixed exchange system. We had a commodity backed currency. It was by design from our forefathers because every civilization in the history of the world has debased their currency. So what does that mean? So Rome started on a gold standard in silver and then as they conquered all these different lands and expanded
00:04:07
Speaker
There wasn't enough gold to go around. So then they moved to the cheap metals, nickel, copper, tin, all that other stuff. And they debased the currency. I'm tracking by the way. Okay. Perfectly good. So what leads to a country not being able to stay on the gold standard of one to 2% annual inflation? Not enough supply.
00:04:30
Speaker
Well, no, you have way more demand. That's what I mean. Yeah, yeah, you said it the right way, actually. Yeah, there's so much demand that there's not enough supply. We can't just go get all this gold. Right. Well, what would that have been? World War, you know, World War I was 1917. And so wars is a big reason why the gold standard didn't work because we need all this money right now to go fight this war. Well, we don't have it. Well, we need to borrow.
00:04:58
Speaker
And so that is really why our, in my opinion, the monetary system was changed from a commodity based system to a debt paid system. What would be the other argument to that? The counter argument isn't as funny because I just was helping my kids with history and I was kind of getting into this and I was talking to my dad about it because he's, you know, he was in banking his entire life and he's read a ton of history books. The counter argument
00:05:22
Speaker
to it is the old system was it's clunky, right? It's slow. Like gold is slow. Like you don't want to walk around with $50,000 of gold coins in your pants. You know, it's just not efficient. I kind of want to, but I get it. Maybe once or twice, but not every day.
00:05:38
Speaker
And so when you first had the formation of the United States in the 13 colonies, and even as we expanded into more states and different regions, well, there was lots of different currencies, local currencies almost. And so they were trying to unify the currency. And so there is a spectrum of people that wanted one currency and kind of the Federal Reserve System, which is what they had in Britain, which is what our forefathers left.
00:06:04
Speaker
And they didn't want that in the United States. And then the other side, you have a bunch of small communities doing their own thing. Well, that's really hard when you want to go to a different city. How do you exchange your currency? It was just clunky, right? And so the answer lies somewhere in the middle. And that's what our forefathers figured out. Hey, yeah, we're going to use a dollar. And it's going to be backed by gold and silver. And you can do the paper thing. But if you want the physical commodity, you can get it back. That was the hard conversion.
00:06:33
Speaker
And so that was their way of splitting the difference, so to speak. Right. So the counter argument is that a commodity-based system doesn't work for a rapidly expanding economy because you need to borrow money. And it's kind of right. They're kind of right. Right. OK. For sure. If you want to grow quickly,
00:06:56
Speaker
you need a debt based, in theory, you need a debt based. It's interesting because it's kind of like businesses too. Right. The people who want to grow fast probably going to have to go into debt. Yeah. Or they got to go public and sell some equity. Right. So, you know, we, the thing is I just looked again, cause I really rarely carry cash, but I have some cash in my wallet and I just, I just took it out and looked every dollar, every U S dollar that is created is debt.
00:07:25
Speaker
So the only way our economy can expand, if you think about it, is by increasing the money supply because we have interest to pay on that debt. So every dollar that gets created is debt. And so if that stops, the economy contracts.
00:07:46
Speaker
period. And when you look at a chart of the money supply and you put that up into the S&P 500, it is insane how correlated the two are. All of the contractions in the S&P 500 come during contractions in the money supply. Interesting.
00:08:01
Speaker
So, which kind of makes sense for the record. There was some history that I did or some research I did for a newsletter that we did, and it was right before the election. And I wanted to know which president and their party did the market go higher. And it was fascinating to me that I thought it was going to be different than it was. What ended up being the Democrats. Democrats, because it seems like historically they're the ones who print more money. They spend more money. Yeah. Yeah.
00:08:30
Speaker
And that's where we're at now because of COVID. So fast forward to COVID, between what the government, our politicians created with all these bills and all these acts and all the stimulus stuff that they did, which was several trillion dollars, and then the Federal Reserve expanding their balance sheet.
00:08:48
Speaker
and printing more money. It was $8 trillion just in the United States alone. Now, when you factor in what China did, what Europe did, what Britain did, it's over like $12 trillion. Different. Yeah. So you have $12 trillion sloshing around in a two year period.
COVID's Impact on Money Supply
00:09:06
Speaker
A lot of money. They print a lot of money. Yeah. 40% of the money supply, like money in circulation now was created in the last two years. 40% of all money ever in the United States. Yep.
00:09:18
Speaker
It's been printed in the last two years. Okay. Yeah. All right. I see where you're going with this. Keep going. Keep saying your words. Keep saying your words. Do you think the cost of milk or potatoes or steak or gas. Are going to be affected. Vladimir Putin going to war for two weeks with Ukraine. Right. Or is it because we increased the money supply by 50%?
00:09:41
Speaker
Right. 18 to 20. I think we probably do need to say this, that we are shooting this podcast on March 18th. I think that's probably good in 2022, just so the listeners can kind of get a ballpark of where we at. I don't know if it's going to air that soon because we're kind of backed up, but March 18th is when we shot this podcast. Right. So inflation mainly comes from the oversupply of money. Overprinted. Overprinted.
00:10:11
Speaker
Yeah, it's all debt. And so now when you talk about interest rates, so the Federal Reserve raised interest rates two days ago, a quarter point.
00:10:21
Speaker
So what does that make the interest right now? 0.25%. It was zero, basically. Okay. So now your bank account should be paying you 0.25%. Do you think it will? But no. Good. No. No. And do you think you'll get taxed on that 0.25% if it does go? Yes. Okay. So, you know, everyone, even the fed is saying, well, we need to raise interest rates to slow down inflation. Inflation, I think came in, they reported at 7.9 for 2021. It was probably closer to 17.
00:10:52
Speaker
The main component of the inflation calculation by the US government is rent and mortgage or price of home basically or the expense of owning a home is 40% of that calculation. That number for owning or renting was basically 17 and 19% inflation in 2021. They reported it as 4%. So 40% of the calculation was listed at 4% instead of 18%.
00:11:17
Speaker
So the number was basically cut in half of what it should have been. That puts inflation at 15% per year. That's staggering. And so when you look at then raising interest rates into a slowing economy with a potential war, not a good recipe to be raising rates. Not gonna get reelected. But with the price of everything going higher, the Fed is in a really tough place, really tough place.
00:11:48
Speaker
because of all this money sloshing around. So it's like, what do you do? So they're gonna try to slowly raise interest rates. What's the problem with that? We have over 30 trillion dollars in national debt.
Cryptocurrency as Economic Drivers
00:11:59
Speaker
So it's not like the 70s where people say, oh, well, they'll just raise interest rates and we didn't have that much national debt in the 70s relative to our GDP. Now our GDP is contracting because the baby boomer generation is slowing down and not spending as much money and they're retiring and now they're on fixed incomes.
00:12:17
Speaker
And so as our economy contracts, and because of all the stuff that happened during COVID, fascinating. Fascinating. You know, I just saw a statistic that 100,000 restaurants closed in the last two years in just the US. So you think about that economic contraction.
00:12:35
Speaker
rising interest rates, and then inflation, and then $30 trillion of national debt, like we're in a very precarious spot. How do we get out? Innovation, I mean, that's really where I think, you know,
00:12:50
Speaker
When you look at what brought us out of the 70s was technology. You know, the 80s we started getting like, I remember you probably had one with Sony Walkman. Oh yeah, oh yeah, Brian, I did. And then we got the internet. You know, the internet was largely forged in the 70s and 80s and then commercialized in the 90s, you know, really when we all got the computer, but we just sat there and looked at it, tried to load a page, we played a basic video game, whatever. Word Muncher. Word Muncher.
00:13:15
Speaker
We can't, uh, you know, we can't even think about not using technology for a day. And there's like people that are like, Oh, I'm going to take off 10 room tech for a day or seven days. It's like a thing now. Right. And I'm not discouraging that. I'm just saying like, that's how far we've come. And so I do think Bitcoin cryptocurrency is going to ref revolutionize the entire financial world, like every transaction. And how does that get us out of the it's a cadundrum we're in now.
00:13:44
Speaker
Well, we're gonna have growth, we're gonna have new industries, we're gonna have new jobs, new specializations, new skills. And because it's money, think about this. The stock market's only open 18% of the time. Bitcoin's open 24, seven, 365. It's open 100% of the time. So you're gonna have massive, when you talk about the economy, you talk about
00:14:13
Speaker
printing money or government stimulus, you talk about the velocity of money, you know, and the trickle down effect, which is a total hoax, by the way. If you're closer to where money is printed, do you want to be closer to where money is printed? Or do you want to be like the trickle down effect?
00:14:30
Speaker
I'd like to be where the money's printed. Yeah, I'd like to be where the money's printed too. I think we all would. And I think if you had the power to print money, you wouldn't want any competition. And that's where I think you're seeing a lot of politicians who have been bought by a lot of these big companies running a hard line against Bitcoin or cryptocurrencies because they don't want competition in how money is made.
00:14:51
Speaker
And so we do have innovation coming with cryptocurrency, and I think we have, you know, technology that's going to change different things, even like engineering or how buildings are made. Now there's 3D printing buildings with like concrete 3D printers. Yeah, it's pretty cool to watch, actually.
00:15:08
Speaker
So innovation and technology has always brought us out of a recession, but then also pro-economic legislation, which largely I don't think we're seeing right now. And so I am super hopeful because I do think we have the technology and the resources as America. And when you see countries like China ban Bitcoin, what do you think the first thing we should do is?
00:15:34
Speaker
Open it up. Open it up. And I think you're seeing that from El Salvador. You're seeing that Mexico is now rumored to be making Bitcoin legal tender. And I think if we made Bitcoin legal tender, it would be a huge boon for us economically and politically. So there's a lot of encouraging things happening.
00:15:53
Speaker
so yeah i think it's always you know you're a batman guy yes yes i am it's always darkest before dawn and it feels a little dark right now you know and i think that is when we know don is coming there's another guy he talks about i think we've talked about it before in a podcast but this like we're in the fourth turning that
00:16:12
Speaker
You know, the new saying I've seen it a lot on social media is, you know, like hard times produce strong men, strong men produce like basically comfortable lifestyle, comfortable lifestyle produces weak men, weak men produce hard times. And it's kind of like that cyclical, that cyclical. And that's what this fourth turning in is like, we're in a period of where things are getting shaken up and it's uncomfortable and it needs to happen and things are going to break and things are going to be reborn.
00:16:40
Speaker
And so that's hard to live through financially of like, okay, what do I do? What moves do I need to be making? And you're seeing that from some of the people in Ukraine right now of like, they just legalized Bitcoin and cryptocurrency over there, because it's the only way they can transact.
00:16:57
Speaker
You know, in a lot of cases, it's the only way they can send money in a lot of cases. And it's so fast and it's uncensorable. And so I think we're seeing the importance and the power of immutable money in Bitcoin, some of these other protocols and, you know, uncensorable money, which, you know, we saw in Canada, they're trying to shut down the truckers, very peaceful protest, by the way, trying to shut down and take their money away from them to get them to stop protesting. I think these are very dangerous things.
00:17:27
Speaker
And when you're not on that side, it doesn't seem that big of a deal, but when you are on that side, it's a huge deal. And who gets to make the rules when those things, you know, where the line is, so to speak. And so I think there's a lot to be said about what's happening right now.
00:17:42
Speaker
And then to segue a little bit, businesses have gone through recessions. You think about McDonald's. They've been through a couple recessions. They're still standing and they're still paying dividends. They're still selling cheeseburgers.
Active Financial Management
00:17:57
Speaker
You can argue the health benefits of all that or whatever, but companies produce profits, produce jobs, and that stands the test of time. So when you look at the stock market, I think we have strong businesses that are operating in multinational places.
00:18:12
Speaker
there's a lot of growth and development stocks are super overvalued you know we've gotten this nice pullback and so i think that is another area of where you know is another way to fight inflation is you know mcdonald's wasn't charging three dollars for a cheeseburger 50 60 years ago but businesses pass through the cost of inflation
00:18:33
Speaker
And you can share in those profits, you know, by owning publicly traded companies. And so that is another way to hedge, you know, the inflation effect. We've talked about real estate, we've talked about owning a business, like personally owning a business. And so I think it's a multi-pronged approach of, you know, hedging the inflation risk, the investment risk, the political risk, and, you know, having different assets that work for you all the time.
00:18:59
Speaker
Right. I think that's good because at the end of the day, you just don't want to sit back and just sit on your hands and wait until it comes to you. And that's why I think the uncommon wealth partners has been such a beacon of hope for a lot of people is we've been telling people like, no, go pursue your passion. Go pursue it now.
00:19:16
Speaker
don't just sit your money in the market and hope that it comes back to you three times as big as it did and then you can figure out what you want to do. Let's figure out what you would want to do if money were no object and let's use your money to try to pursue that and get paid for doing it. It's a different kind of mindset. It's a totally different mental shift that I think has been very encouraging and motivating to people.
00:19:37
Speaker
And even now it just seems like before this, you know, with the whole covid situation, like people who thought they had amazing jobs that were super secure are now so secured out. Yeah. Yeah. And then and honestly, like with everyone resigning, they're all trying to figure out like, but I wasn't happy there. Like I wasn't impacting people that I would like to. And so
00:19:59
Speaker
Man, it's been really good to be able to walk some of these people through. Like, hey, you do have a lot of money in these accounts. Let's be a good steward of it. Let's put them in accounts that can grow and you can find inflation and this, that, and the other, but it's real. You need to talk about it. And I mean, for these poor retirees that don't have that much money, I mean, it's got to be super scary. When bread could go up to $14 a loaf. Now, you know, gas and stuff.
00:20:26
Speaker
It is scary for those kind of people. So what would you say to those people who are, they probably aren't listening to our podcast for what, but if they were, uh, what would you say? Well, I think it's the importance of, you know, the importance of, you know, we added commodity exposure, more direct commodity exposure to, you know, our portfolios in Q4 of 2021 that obviously is played out well.
00:20:50
Speaker
And so it's you know, obviously being invested in different things. I think it's also the importance of owning a little Bitcoin and owning it directly that you control and you know, having a hedge to essentially the change potential change in currency.
Investment Diversification Strategies
00:21:05
Speaker
And then three of just not making decisions alone, especially out of fear or emotion that aren't based on financial or economic principles. We've seen people do some goofy things at more emotional states, and I don't know that that serves your long-term plan.
00:21:28
Speaker
Um, and so I think, yeah, making, making decisions where you're getting help or getting a view on different things and making sure you're not like, Oh, I'm going to put all my money into this. This sounds like how many times we hear that actually. I know. Yeah. You laugh about it, but this sounds like a good idea. Let's put it all in there. And we even had somebody interesting enough the other day say, well, why don't we just put all of our money?
00:21:51
Speaker
in commodities right now. Well, what? Like that doesn't seem wise when you're thinking like, well, what if the war is just like, and it's over, you know, then oil and gas prices go straight back down to where they were. Yeah. And so I think it's an importance of, you know, and I think the other thing that we've talked about is staying aggressive and aggressive, I think in an investing sense has a, um,
00:22:15
Speaker
negative connotation to it. But the age old financial acumen in our businesses, as you get older, you take less risk and you move more money to safety. Well, when interest rates are going up, that doesn't bode well for bonds. And so how are you going to navigate some of these things? It's actually probably staying invested with stocks. It's staying invested with a Bitcoin exposure, commodity exposure. It's staying invested in things that can appreciate in price relative
00:22:44
Speaker
you know, to inflation. And so, um, and yeah, and having just a financial plan of where your income is coming from and that type of thing. So it's good. And I gotta be honest with you. I was staying with you the whole time. I feel pretty good about that. Uh, so what other things can we talk through quickly for our listeners, just to even give them hope or encouragement in this all too interesting world where they don't know what's happening.
00:23:09
Speaker
Yeah, I think philosophically it's interesting because I think a lot of people are like intuitively people know like something's not right economically. And so I think just to know that we're philosophically aligned, you know, we're using data sources and people that have been right and are navigating these things. So I don't feel like we're gonna be
00:23:33
Speaker
Surprised, surprised. I'm not saying we're gonna get it perfect or anything like that, but philosophically speaking, I think we're aligned with a lot of our clients and the way they're perceiving things, the way they're viewing things, and we're trying to keep a step ahead.
00:23:46
Speaker
And then I think the other side of it too is taxes. It's apparent going through tax season this year with our clients that it's just like, there's just more and more work to do on mitigating taxes. And the tax code and the way it's getting shaped up is getting more and more oppressive. And when you combine that with inflation, it's a double whammy. Inflation is the silent killer, it's the silent,
00:24:15
Speaker
the ghost tax, you know, it is a tax on your future income. And, you know, that's why we're we wanted to do a show on it and address it.
00:24:24
Speaker
and to know where it's coming from. It is coming from the Federal Reserve. It is not coming from Putin. Some war overseas.
Green Energy Transition Challenges
00:24:33
Speaker
And the other thing that I would say that Europe is more exposed to this than we are is this whole alternative energy, this whole greenwashing of everything, this ESG, environmental, social, responsible investing. And I think there's a lot of wisdom in some of that, avoiding some of the SIN stocks and that type of thing.
00:24:53
Speaker
But this is not working. This is not working at all. And there is no way that 100% of our power or energy need is going to come from green stuff.
00:25:08
Speaker
wind, solar, uh, geothermal, all these things. I think that it's great, but there is no way a hundred percent of our power is coming from that in the next five or 10 years. It is like a 25 to 50 year transition and it's being sold as like, Oh, just do this and it's going to fix everything. And I mean, Germany's in that boat right now where they've decommissioned nuclear reactors. You know, they have these insane standards to meet from like percent of power coming from green sources.
00:25:38
Speaker
And they are basically beholden to Russia's oil right now. And they have really no other alternatives. And so I think it's to be said that we should be investing in oil and natural gas in the United States. We should be investing in oil and natural gas in Canada.
00:25:53
Speaker
and potentially offshore. And these things have actually served us and our economy for over 100 years. Very well. Very well. And to be energy independent will actually allow us to transition more sustainably to alternative energy. You're not saying to never do that. It's both and. Right. And so, you know, I think there's a lot of stuff being said, like there's a narrative out there that like, I mean, even in the sake of, in the space of this war,
00:26:23
Speaker
They're like wanting Putin to be environmentally conservative or something like, well, remember your green mandate, like while you're going to war and bombing some other country. I don't think he cares. I think we're off the reservation a little bit.
00:26:39
Speaker
And so anyways, that is also causing inflation because there has been a massive underinvestment in the United States over the last 10 years in oil and natural gas. And now, like everybody knows, we're getting some of this stuff from Russia and or other countries that we may not align with politically when we have plenty of it right here.
00:27:01
Speaker
That's a good point. Okay. I feel like this is enough. I feel like I'm starting to glaze over. I'm not, but I feel like I'm starting. You were glazed over. Yeah, a little bit. Okay. Thank you for listening. Brian, thanks for the commentary. I think it was really good. And if listeners have questions or they want to talk about this stuff, obviously you can reach out. But I think it's important to know some of the, you're not going to get the full story, just listen to the news, I don't think.
Episode Conclusion and Resources
00:27:29
Speaker
What's behind it all.
00:27:30
Speaker
I think that's good. Okay, again, if you have any questions, reach out to us at www.uncommonwealth.com. You've been listening to the Uncommon Life Project. I've been your host, Philip Ramsey. And I am Brian Dewhurst. Mainly Brian Dewhurst on this one. Until next time, go be uncommon. Have a great day. Bye.
00:27:47
Speaker
That's all for this episode of the Uncommon Life Project, brought to you by Uncommon Wealth Partners. Be sure to visit uncommonwealth.com to learn more about our services. Don't miss an episode as we introduce you to inspiring people who are actively pursuing an uncommon life.