Can America Survive Peak Inflation?

Can America Survive Peak Inflation?
"What do you mean, that's not the peak?" Photo by Mathias Jensen

From Peter Reagan at Birch Gold Group

For many Americans, economic times like these are a true test of their retirement planning. If you have a plan, hopefully it’s holding up so far.

Although I wouldn’t be at all surprised if you’re off-track. After all, financial markets have been volatile yet declining all year. Mortgage rates are nearly double last year’s rates and housing prices are plummeting. Reports of imminent recession dominates the headlines. Certainty has been in mighty short supply.

In fact, just about the only thing that’s been reliable so far this year is that our dollars are buying less and less. That’s a real concern. Argue the causes all you want. Blame supply chains or Vladimir Putin or a 50% increase in the money supply – blame all three. No amount of scapegoating changes our situation…

Inflation has been heating up at an incredible pace since January 2021. Month after month, inflation has been picking our pockets. Ron Paul calls it “theft” and he isn’t wrong.

The last three or four times inflation reports came in unexpectedly high, the Fed was quick to assure us not to worry. It wouldn’t get worse. We’d climbed a mountain called Peak Inflation, and the trip would be all downhill from here.

So far they’ve been wrong. Consistently, obviously wrong.

We’re still climbing that mountain. They told us at first it wasn’t really a mountain, just a hill. Just a bump in the road. When that story was no longer plausible, the story changed – yes, it’s a mountain, but we already climbed it. The hardest part is over! The rest of the trip will be easy. Soon we’d be back down the mountain and everything would return to normal.

Listen: you’re probably tired of hearing about this. (I know I’m tired of writing about it.) Even so, this is a crucial issue. The decisions we make today can make or break our future financial security.

So let’s try to assemble a map of Peak Inflation and see whether we can figure out exactly how far we are from the top…

The fastest way down the mountain

To extend our mountain-climbing analogy, we know there’s a really fast way to get back down.

All you have to do is jump. That leads to what we call a hard landing. In economic terms, a brutal recession at least that sends markets tanking, businesses into bankruptcy and workers to the unemployment office.

You should understand that Federal Reserve Chair Jerome Powell wants us off this mountain, too! The Fed, the Treasury Department and the Biden administration have been promising us there’s an alternative to jumping, which is called a soft landing.

A soft landing would be ideal! We’d get to the bottom of the mountain without broken bones. In economic terms, we’d get to the end of this harrowing journey without that merciless recession, market chaos and unemployment

The major difference between a hard landing and a soft landing (other than those broken bones)? Soft landings are a whole lot slower. Pick your own metaphor here – whether you use a parachute or a staircase, getting down the mountain this way takes longer.

And the longer this journey takes, the more it costs us.

Recently, though, Powell’s waking up to the reality that a painless soft landing might not be possible. As Politico’s Ben White puts it:

Jerome Powell has been pretty clear that nothing works in the economy at inflation rates like this. He’s also been clear that he’s not certain the Fed can produce the dreamy “soft landing” in which a series of mostly gentle hikes tamp down consumer demand for goods and services and keep a lid on wage gains without driving up the historically low 3.6 percent unemployment rate.

Again, think of our mountain-climbing analogy. A series of “gentle hikes” might get us down eventually, though it’s going to take a long time.

As this journey continues, we lose faith in our leader.

He says he has a map, but he won’t let anyone else see it. He says we crested the summit of Peak Inflation four times (at least). Powell’s credibility is at stake, and he knows it.

That’s probably why White told us, “In a pinch, the Fed will always choose recession over losing control of prices.”

That means Powell will take us down the fast way, hard landing and all, as a last resort.

How close is the nearest cliff?

Our map of Peak Inflation looks like this

You’re tired, your feet ache, and all you want to know is, “Are we there yet?”

Our answer is: probably not. Some categories are easing a little, and that’s good news. The overall trend, though, hasn’t changed. Our climb probably won’t get any steeper.

But how far are we from the summit? Do we still have farther to climb?

I’m afraid so. See, producer prices are still rising and that’s the best predictor of higher prices on store shelves. Final demand producer prices rose 11.3% year-over-year, while intermediate prices (the stuff used to make the stuff we buy) are up 22%. Those surging prices are still working their way through the supply chain, which means higher prices coming soon to store shelves near you.

How much longer?

We don’t know. Not because Powell won’t show us the map – because there is no map. White’s succinct assessment:

Not only has inflation not peaked, nobody really has any idea how or when it will.

Not only is there no map, no one’s sure exactly where we are, or how we’ll get back down. In the meantime, we’re all in this together – and there are a few things we can do to cushion our own landings. We can’t save everyone, but we can save ourselves…

Preparing your own soft landing

The longer this trip lasts, the more we lose. The purchasing power of the dollar has declined 12% in the last 18 months alone.

Since we don’t know how much longer we’ll be climbing this mountain together, now’s the time to make sure we’ll financially survive any landing, no matter how soft or hard. Take a few moments to read up on inflation-resistant investments and make sure you’re appropriately diversified. It’s probably not a good idea to place too much faith in any one asset class (that’s what “diversified” means).

Should you decide that physical precious metals are right for your financial security and peace of mind, Birch Gold can help. You can learn more about transferring retirement funds you’ve already set aside into a precious metals IRA here.

If you choose to call us up, please be patient – there are a lot of other frustrated climbers we’re helping off the mountain right now…

2022, Featured, federal reserve, inflation, jerome powell