The growing fear of rising inflation

Now people are worried about inflation...

With reports from the US showing a massive uptick of inflation to 5.4 percent, finally Australians are starting to get a little concerned about how much they have been spending on houses, as the response to inflation is for the central banks to raise interest rates, which obviously affects debt. Because so many in the last year or so have been buying into the bubble on very precarious deals, taking larger loans than they can afford by having the bank of mum and dad top up their personal savings so they can access more debt.

The problem is that once interest rates rise, the people who had to extend themselves to their limits in order to get into the housing market, will no longer be able to service the debt they have accumulated and will be forced to sell or default on their loans, which will see the bubble pop and a drastic collapse in price. And not only is their housing debt to service, the explosion of Buy Now Pay Later services (BNPLs) over the last year for consumer products is indicative of all the other debt that also needs to be serviced.

Inflation will mean that all of the things that people have become accustomed to buy will increase in price, but it won't be a uniform increase. So while on average things will increase 5%, some might see only 1% increases while others might see 10% increases. all that needs to happen to put untenable pressure on many people's ability to service their debt is for the larger increases to be placed on something like utilities, things that every home needs to function. Of course, increase the price of the things that "people just can't do without" entertainment-wise will see more turn to credit options, rather than miss out on the latest gadget too.

Who knew that printing all that money to pay for people to stay home and not work was going to screw the economy even more? Oh, everyone. However, people chose not to care because Greed "Free Money" is Good!" Of course, who is going to turn down government handouts?

Inflation isn't all bad of course, but it is only valuable when the increase is adding value to the economy, which it hasn't been, at least for the majority of citizens. While the 1% have become far richer, the average person is getting decidedly poorer and more debt encumbered. Once the inflation rate increases further based on growth that hasn't added wealth to the majority of people, the majority are going to become less capable of maintaining their lifestyles and have to increasingly cut back. Because the debt level is so high, even while they are cutting back to survive, they will still have to service their debt, effectively increasing the wealth of the 1% even further, making the wealth gap even wider.

While the majority of recently printed money injected into the economy was used to maintain consumer spending and keep the economy afloat, most of it ended up pooling in the same small group of hands. As I have said before and for over a year now, this has been the fastest conduit for wealth transfer from the bottom to top the world has ever seen. However, it is only just ramping up.

Now that the debt level is so high around the world, as the interest rates start to increase, those servicing the debt will have less disposable income, while those who own the debt will have increasing amounts. As people lose the homes they can no longer afford and have their personal finances torn apart, those with the money mounting will be able to ladder in and buy the dip, waiting just long enough to ensure catastrophic economic failure.

We are heading into an unprecedented era of the global economy as never before has it been so interconnected and controlled by so few organizations. We saw how much of a problem this was in 2008 with the banking crisis, but I think that was just a taster of what is to arrive, with the lessons learnt not on the consumer side of the equation, but on the finance side and what they learned, was how to better transfer wealth to themselves.

I don't know what is going to happen in the long-term conditions of the global economy and I am not even sure how insulated or exposed I am in the short-term of it, but disruption is coming at a level that most people cannot fathom, bringing with it hardship most people have no preparation for financially, physically or emotionally.

While people keep hoping that something will save the traditional economy, I think that the only tenable solution is to build and support an adjacent economy alongside that can increasingly attract and grow wealth that operates outside of the traditional. While disruptive, splitting the economy in this way can bring some stability to both by creating inefficiencies and therefore space for more participants in the economy as a whole, increasing the number of hands that have influence, distributing wealth further, bringing opportunity and potential to those who have already been cut out of the legacy economy.

It is not without risk or hardship, but it does come with agency and ownership - which are both increasingly lacking in a world that runs on control through debt and the flow of money.

Taraz
[ Gen1: Hive ]