WIN

November 17, 2021 - Published by IAG Wealth Partners

Categorized in:


48277252272 23e5f98796 b

Who doesn’t want to win?

Whether it is scoring a walk off run at a softball game, writing a viral post, or just getting your kids in the car on time, winning makes people feel happy.

Recent consumer surveys are pointing to a significant increase in unhappiness among Americans. They are collectively unhappier with current conditions and are expecting them to get worse in the future. That is not a winning feeling.

As strongly as the economy has bounced back from the COVID closure in 2020, as much as the financial markets have surged up, as much as unemployment has plummeted, it is not enough to make Americans feel like winners.

What would make Americans feel like winners? Lower inflation.

A vast majority of Americans (let’s say everyone under age 50) have never experienced persistently high inflation in their lifetimes. They don’t understand waiting in line to get gasoline. Throughout their lifetimes, most American consumers have gotten what they wanted when they wanted it at a reasonable price. And now that has abruptly changed.

Inflation in its simplest terms is caused by too much money chasing too few goods or services. The solution, therefore, is less money chasing more goods – which is not as easy as it sounds.

Less money requires taking some unpopular steps such as raising interest rates, reducing federal spending, or raising taxes. Does “we feel your inflation pain and will solve it by inflicting more pain” sound like a winning campaign slogan for the next election?

More goods and services require more employees or more automation to get more work done, more efficient global supply chain management, and fewer ill-timed government policies that disincentivize producing more goods or services. These steps take more time than the next election cycle permits.

Of course, the politicians’ “easiest” solution to inflation is to villainize companies that raise their prices and then heroically solve the problem by authorizing the government to implement price controls. Price controls create future problems, but politicians are more concerned about the now. Thankfully, we have not reached this step yet, but the next election is still only a year away.

It is entirely plausible that some of the current inflationary forces will abate over the next twelve months. Perhaps energy prices have peaked and will grow at 0% over the next year. Perhaps rising interest rates will cool the housing market. Perhaps supply chain kinks will gradually be improved. That is the optimistic scenario.

It is equally plausible that our employee shortage continues to drive labor costs (and prices) higher. Or weather events drive food prices higher. Or reconfiguring supply chains results in using higher-cost providers. Or government spending and regulation accelerates. Or interest rates are kept too low for too long.

As much as we would like a quick WIN, taming inflation could require longer-term effort and restraint that will be unfamiliar and even uncomfortable for most Americans.

 

Quote of the week: William E. Simon: “I continue to believe that the American people have a love-hate relationship with inflation. They hate inflation but love everything that causes it.”


Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IAG Wealth Partners, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.

Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.

Graphic licensed through Flickr

Other News Articles