The Warning Of Hyper Inflation | DO THIS NOW

So, as most of you know, I usually intro my videos with "What's up, you guys? It's Graham here." But the only thing up today is inflation, and it's getting much, much worse than most of us initially expected. Throughout the last week, it was revealed that prices have surged to their highest level in 30 years. The cost of living has increased 6.2 percent year over year, and even worse is that it's not expected to stop anytime soon. As we could already see, food prices are up another 8.6 percent. Gasoline rose 64% to its highest level in seven years. Rents are up another 16.4 percent this year alone.

The fact is, the situation is so bad that rising inflation is taking away from the average worker's wage increases, meaning you're effectively now making less money than you were before. Arguably, the most debated topic throughout the foreseeable future is going to be how much worse can things get? How much longer is this going to continue? What's the root cause of the issue? And where could I invest my money today so that it suddenly doesn't go up in flames? Because let's be real, even though inflation has seemingly turned into a political negotiation tactic, there's a lot that they're not telling. The real answer is a lot worse than just printing a whole bunch of money, even though that's a part of it.

But before we start, in typical YouTube fashion, it would mean a lot to me if you inflated that like button for the YouTube algorithm. Just one gentle like button stimulus helps out my channel tremendously by recommending this video to a brand new audience who could also inflate the like button for the YouTube algorithm and repeat the process over again. So, thank you guys so much for doing that.

With that said, let's begin. Alright, so to start things off, here's the big scary word that investors and politicians hate more than YouTube removing the dislike button, and that would be inflation. This is the rate that products and services increase in price over time, lowering the value of the money that you have today. Like, remember when your grandparents used to tell you stories about the old days when a movie would cost a quarter or how a brand new Ferrari 250 GTO was only eighteen thousand dollars when it first came out in 1962? Well, that doesn't exist anymore thanks to inflation.

It's generally thought that the more money gets printed into our economy, the more we devalue the existing currency in circulation. Over time, the more dollars it costs to buy the exact same thing. Now historically, over the last 40 years or so, the rate of inflation has actually been consistently going down thanks to increasing efficiency, meaning we're now able to produce much more for less, and our money isn't losing value as fast as it once did. But things are quickly starting to change. That's because it's reported that nearly half of all US dollars in circulation were created in the last 18 months alone.

Now that our economy has, for the most part, completely reopened, that excess money is driving up the cost of everything else around us, leading us to the highest inflation that most of us have seen in our lifetime, at least according to my YouTube analytics. Now, on a large scale, inflation is really nothing new, and we've been seeing this every single year consistently since the beginning of time. It's why in 1955, a house cost ninety one hundred dollars, and now 66 years later, it's 374 thousand dollars. Or how a gallon of milk used to be 92 cents, and today it's 3.69 in California.

Anyway, right now, with inflation rising harder, better, faster, and stronger than the Federal Reserve initially anticipated, there's certainly the fear that it'll continue to grow out of control. All of this comes right before another multi-trillion dollar stimulus package. So, what's gonna happen? Well, the root cause of inflation seems to be broken down into four categories.

The first is due to increased demand and not enough supply. Like, the price of gas goes up as more people travel, take vacations, use their car to do anything else that requires extra energy consumption. Once they can't create enough to keep up with demands, then boom, prices go up. Now, the second is said to be due to an increase in production costs. For example, throw out a labor shortage; businesses needed to pay more to attract new employees. However, to help compensate for that new increased cost, prices eventually had to rise, and over time that cost gets passed on to you as the customer.

This was such a significant effect that the concept was known as the Great Resignation, where Americans quit their jobs for higher-paying opportunities. But with that comes the cost of higher prices down the line, like what we're kind of seeing today. The third, there's also a source of inflation called built-in because it's caused by the prices of goods going up, which causes people to need to make more money to pay for them, which then begins to cycle all over again. This is also what's known as a wage-price spiral. It's when rising wages increase disposable income, which increases demand for goods and services, which increases their price, which then causes demand for higher wages to pay for those higher prices. And then we get crazy, unstoppable, unsustainable price increases that have to end somewhere.

The fourth, arguably one of the biggest problems that's not being addressed, is the supply chain bottleneck. Now sure, increased monetary policy, rising wages, surging demand, and higher production costs certainly impacts the price of your everyday items, but the worst from all of this is shipping. See, most businesses rely on the imports of other countries, and often those items are shipped overseas in large containers that arrive at ports where they get sorted and sent to trucks to their final destination. But those shipping container costs are expected to rise by an average of 126 percent this year.

Even worse, spot rates of current shipments are four and a half times higher than they were a year ago. Reports also show that reliability is half as good, and delays are more than twice as long as they were in 2019. Part of that has to do with the shortage of workers capable of handling such a high amount of inventory. With increased demand for physical goods, it's created almost like this traffic jam of cargo vessels, sometimes waiting weeks at sea to dock, further delaying their arrival and costing significantly more money to operate. That's also causing manufacturers to begin slowing down their production because, after all, what's the point of increasing supply if it's just going to be stuck on a vessel anyway?

Finally, we also have something called shadow inflation. This is what happens when you pay the same price for goods or services, but the quality or quantity of the item decreases without you knowing it. A user on Quora actually wrote a really interesting piece on what's called shrinkflation that I had to include here because these pictures are absolutely mind-blowing. As you can see here, now you get slightly less than before. The new peanut butter container needs less of it to be filled; you're secretly getting four or fewer cookies; the bag is half empty, or is it half full? Normal-sized container, fewer markers, same gel, less of it. In a way, this is a new common practice throughout so many industries to give you the illusion that prices are staying the same even though technically you're paying more for less. Crazy, right?

Now here's the thing: in small doses, inflation is actually encouraged, and when it's under control, it could actually be a good thing. The United States has really done its best to create a safe, stable, and consistent inflation rate of about two percent annually, and over the last 25 years, they've pretty much hit exactly that. For some people, that could be great. That means that certain assets will rise in value, like stocks, commodities, and real estate. So, if inflation goes up three percent a year, then chances are so do your investments. Other people say that moderate inflation is necessary to keep our economy moving forward because, if we know our money is going to be losing a little bit of value every year, it encourages us to either spend or reinvest back into our economy, which keeps it growing. It's just seen as a healthy indicator that our economy knows exactly what to expect. Businesses could plan accordingly, and it's slow enough that most of us won't even notice it day to day.

The problem, however, is when inflation begins to eat away at the purchasing power of your money faster than you're able to make it, and right now wages just can't keep up. On the one hand, the Federal Reserve says that the inflation we're seeing today is transitional, caused primarily by supply chain and shipping bottlenecks, which temporarily increases their own costs. But others believe that it's a direct result of excessive spending in stimulus packages, which lead us closer to the point of no returns.

So, what is it? Well, if we look back historically, we could see that since the early 1900s, we've had a few periods of excessively high inflation and several times where it exceeded 10% annually. So, what caused that? And could we see something similar to that again today? Well, the first, most severe, and probably the most obvious one happened from 1913 to 1919 as inflation surpassed 19 percent, and I just realized that's a lot of 19s. Anyway, this was due to the spending of World War I and the fast manufacturing of supplies. Not to mention, it was also estimated that a shortage of resources led to increasing prices, which really was the perfect storm.

After that, we have another period of intense inflation during and after World War II. During this time, there was a period of wage freezing, price control, and several other measures that were taken into place to prevent companies from having to increase their wages. But because of the severe deficit of spending involved in the war, more money had to be borrowed, leading to more money in circulation, and the extreme spending led to an inflation rate of 13 percent.

However, even though the time from the 1900s to the 1960s saw periods of extreme inflation and even deflation, they nearly balanced each other out. Until 1960, the average rate of inflation was only about one percent a year. That was until 1970 when inflation began hitting double digits. By 1974, this was in part due to the removal of the gold standard in which the value of our dollar was tied to the value of gold. That led to the money that we have today, where twenty dollars is only worth twenty dollars because we say it's worth twenty dollars. Otherwise, it's just a fancy piece of paper that cost 11.2 cents to make.

Although after that, until now, inflation has remained rather steady, and throughout the last 40 years, it's hovered somewhere between one and four percent. That's because of stricter monetary policies and the Federal Reserve's target to keep inflation at about two percent annually, which is enough to promote spending, but not enough to devastate the entire economy. But what about today? Because certainly, we are in unprecedented times if inflation is rising at the fastest level in decades, right?

Well, I'll be honest; that's the million-dollar question, and it just depends on who you believe. The Fed maintains that it's temporary, and we should start to see things begin to normalize throughout the next year. But if they're wrong, we could continue to see rising costs, higher interest rates, and higher inflation causing people to worry. Evidently, it's already enough of an issue to cause the IRS to raise their tax brackets for 2022, so that's telling that inflation is becoming a driving factor in the future of our economy. But to what degree? We don't know.

Personally, I've said this year that inflation is going to be much worse and last much longer than we expect, and so far that's happened. But that's also a rather open-ended assumption that means absolutely nothing without a definitive time frame. If I were to give it a random guess, I would say another 18 to 24 months before things begin to normalize. But please don't listen to me because I'm not an economist, and I just do a lot of reading online because that's what I find interesting.

That’s it. Although in terms of what you could do about this if you're investing, you should really be sticking with good, solid long-term companies that you could hold for decades and then don’t sell. You could also look to refinance your mortgage or lock in a low interest rate now before they might end up increasing. This is exactly why I've chosen to keep my mortgages for as long as possible at the lowest possible interest rate that I could find.

If we do see worse and longer-lasting inflation than we expected, it just means that it's going to be easier to pay off with future dollars. And when my interest rates are 2.8 percent fixed for the next 30 years, if inflation averages anything higher than that, it essentially means I'm getting paid to borrow money, which is an absolutely amazing concept. I'm also choosing to diversify about eight percent of my portfolio into a 50/50 split between Bitcoin and Ethereum just as a hedge against whatever might happen. Plus, I'm a fan of cryptocurrency in general, so I'm happy to allocate a small portion of my portfolio into something that I'm still trying my best to understand.

Beyond that, though, day to day, it's probably a good idea to be a little bit more observant into the cost that you're paying, track your expenses, and do your best to shop around. Certainly, these are all reasonable habits for any time, not just right now. But if prices continue to go up, then saving a little bit of money never hurts, and you should always just look to get the best deals. Anyway, as well as destroy the like button for the YouTube algorithm.

So, with that said, you guys, thank you so much for watching. Also, make sure to subscribe and hit the notification bell. Also, feel free to add me on Instagram and on my second channel, The Graham Stephan Show. I post there every single day I'm not posting here, so if you want to see a brand new video from me every single day, make sure to add yourself to that. Thank you guys so much for watching, and until next time!