STOP SAVING MONEY | The Warning Of Hyper Inflation

What's up? Grandma's guys here. So, there's no easy way to say this, but let's just rip off the Band-Aid. Yes, it's true, I've worn the same shirt now for the last few days so I wouldn't have to do laundry. Oh, and yeah, inflation is spiraling out of control. Just yesterday, U.S. consumer prices hit their highest level in 40 years at a staggering seven and a half percent, while rents increased 14%. Gasoline is 58% more expensive than a year ago. Coffee prices hit a 10-year high. And even worse, it's not expected to stop anytime soon. But hey, at least on the bright side, the Costco rotisserie chicken is still $4.99. So, that's pretty cool.

Okay, but on a serious note, it's become clear that the current situation is getting out of hand, and stocks are reacting negatively. So, it's extremely important that we talk about how much worse can things get, how long this will continue, what's the root cause of the issue, and where you could invest your money so that it doesn't suddenly evaporate into thin air. Okay, not as cool as Andre Dick, but you know what? I try. Although before we start, in the spirit of inflation, it would mean a lot to me if you inflated the like button for the YouTube algorithm because it does help me out tremendously. So, thank you guys so much. Also, feel free to subscribe because, uh, that's also free. And with that said, let's begin.

First, we gotta clear up a lot of confusion on the report that inflation came in at seven and a half percent, which yes, is the highest on record in the last 40 years, but that doesn't tell us the entire picture. See, on a really basic level, inflation is simply the rate in which products and services increase in price over time, lowering the value of the money that we have today. It's generally thought that the more money gets printed into our economy, the more we devalue the existing currency in circulation. And over time, the more dollars it costs to buy the exact same thing.

Like, remember when your grandparents used to tell you about the good old days when a can of Coke was five cents and a brand new Lamborghini Miura was only twenty thousand dollars when it first came out in 1969? Well, that doesn't exist anymore thanks to Jerome Powell. No, just kidding, thanks to inflation. 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 a lot more for a lot less, and our money is going a lot further than it used to.

But oh wow, have things changed over these last 12 months! That's because it's reported that now 80 percent of all U.S. dollars in existence were printed in the last 22 months, and now that our economy has, for the most part, completely reopened, that money is driving up the cost of everything else around us, leading us to the highest inflation we have ever seen in our entire lives, at least according to my YouTube analytics, who say the average viewer of my channel is somewhere around 26 years old.

Now, on a large scale, inflation is really nothing new, and we've seen it consistently nearly every single year since pretty much the beginning of time. In fact, the years we don't see inflation is almost always associated with the recession for reasons we'll talk about shortly. But for now, all you have to understand is that for the last 100 years, inflation has really been the backbone of our economy, and it's exactly why in 1963, the median cost of a home was seventeen thousand eight hundred dollars, whereas now it's four hundred and eight thousand dollars.

However, here's where things get interesting: even though we know that prices are rising at an incredibly fast rate, the real mystery comes with how inflation is actually calculated, and maybe it's a lot higher than a lot of us think. See, inflation is not a one-size-fits-all approach across everything. After all, if the price of a first edition Charizard goes from twenty thousand to three hundred and fifty thousand dollars because Logan Paul makes a video on it, that's not showcased on a list from the Federal Reserve while they rapidly raise rates to bring down the cost of collectibles. Instead, inflation is measured by the essential items and services that people need to use on a regular basis.

The main category that gets the most attention is what's known as CPI inflation, which stands for the Consumer Price Index. This covers a weighted average of the most frequently used purchases, and it's tracked on a year-over-year basis every single month. As a simple way to visualize it, just imagine that you have a grocery basket of 10 items, and on a regular basis they compare the current cost of the basket with the month prior. If that basket costs more, we see inflation, and that's reflected in the headline that we see all over the news outlets.

But unfortunately, here's where things take a turn for the worse. CPI may not be accurate, and it may very well underestimate the true impact of inflation, meaning some could say that it's way higher than what a lot of us think. After all, there have been numerous revisions to the CPI that lead people to believe that it's crafted and manipulated to fit a one-sided narrative, and in a way, they're kind of right. Just consider that today you're often paying way more for features that weren't even available ten years ago, like the fact that all new cars are required to have a backup camera or the new iPhone has three cameras instead of one.

Houses now have more technology built in than they did in the 1960s, all of which means that you're now paying more because of that. There are other ways of calculating inflation from urban consumers, wage earners, and the elderly on Social Security because someone who's 30 years old living in San Francisco is going to experience entirely different pricing conditions than someone else who's 80 years old, retired in Kansas. CPI was also adjusted for the fact that as prices rise, consumers might go for less expensive options as a way to save money.

As a result, it was set to maintain a set standard of cost over time. This also a metric called core inflation, which excludes food and energy because both food and energy are considered to be staple items that are consumed regardless of how much they cost. After all, you still need to eat even if the pancakes at IHOP are costing more.

I know I'm getting a little bit too technical for YouTube, but from all the research I could dive into on a Thursday night about how inflation is calculated—because, uh, that's what I do on a Thursday night—it's fun. It's more fun than you would think. But from what I could gather, every aspect of CPI is being constantly adjusted to reflect for quality increases, quantity decreases, new features, and keeping that as consistent as possible. Although ultimately, no measure is going to be perfect, and that's just the reality.

Like, just remember 20 years ago, you would have to go and buy a digital camera, desktop computer, and cell phone for only a fraction of the features that you could do with this. Basically, all you need to know is CPI inflation is as accurate as they could get for an extremely broad population, but that is not going to reflect everyone's experiences, and that's why it's been so heavily debated.

However, in terms of what's going on right now, here's what you need to know in terms of you, your money, and your investments. First, inflation. If you're consistently losing your mind thinking that Chipotle always costs this much, you're not alone. Yes, Chipotle did raise prices, but used cars are also up 40 percent. Gas for those cars is also up 40 percent. Hotels are up 23%. Furniture is up 20%. Foods are up 12%. And everything else you use on a daily basis is up a lot more than it was a year ago.

Now, in terms of why inflation is so high, besides a surplus of money printing and low interest rates, we're in a unique position where we have several forces all working against us all at the exact same time. For example, we have what's called demand-pull inflation, where demand outstrips supply and therefore prices go up. We also have what's called cost-push inflation, while supply is temporarily restricted due to supply chain bottlenecks and labor shortages causing prices to rise even more. And then, of course, we have the doomed wage-price spiral, as companies have to pay their employees more because they need to earn more to buy the items that now cost more, causing the cycle to repeat.

Speaking of which, that leads us to second: company earnings. Right now, it's no surprise that earnings are incredible. But the one thing that a lot of people don't consider is that companies are reporting higher sales revenue because they are raising prices, and that's only expected to continue. For example, Coca-Cola mentioned that they could potentially increase prices if costs continue to rise. Procter & Gamble mentioned that the company is taking some measures to try to offset substantial year-over-year increases of commodity and transportation costs, and everything is pointing to the fact that companies will have to raise prices, otherwise their margins decline.

Third, borrowing is now officially more expensive because inflation increased at such a rapid rate. Bond yields increased on the expectation of larger-than-normal rate increases from the Federal Reserve, and that is reflected in the interest rates of your loan. Mortgage rates, for example, are at their highest level since prior to the pandemic, and now with credit card debt about to be costing more, it's presumed that consumers will begin to pay down existing debt then continue to spend more money, which I guess, let's be real, is probably a good thing.

And fourth, we've got taxes. The one thing to consider is that tax brackets have only increased three percent between 2021 and 2022, meaning the net take-home pay for everyone across the board is going to be less because inflation rose faster than wages. If that sounds confusing, just consider this on a really basic level: if inflation is seven and a half percent and tax brackets only increased by three percent, that means you're paying an extra four and a half percent to the IRS because your dollar now has less purchasing power than it did the year prior.

And that's something that's easy to forget about. In terms of the market though, worse inflation readings increase the likelihood that we're going to see a Fed rate hike when they meet in March, and that is seen as a negative for stock values as borrowing gets more expensive. See, prior to now, the market was pricing in a 100% chance of a rate hike in March with the most likely outcome being a quarter-point increase and a 28% chance of a half-point increase. But now, after the new inflation readings, futures showed a 62% chance that the Fed would raise rates by half a point, and other metrics showed that increases having a 95% probability of happening.

In other words, the one thing the market hates is uncertainty, and when inflation comes in worse than expected, it sends the market into a frenzy as it tries to price in the worst-case scenario, and as a result, your portfolio sees some red. And by the way, if you want to take advantage of lower stock prices, you may as well go and claim your free stock on public down below in the description when you use the code "gram" because that could be worth all the way up to a thousand dollars.

But no, seriously, feel free to get your free stock and let me know which one you get. In terms of real estate though, surprisingly, higher interest rates don't seem to be deterring buyers at all. If anything, it's encouraging more of a buying frenzy as people try to lock in an interest rate before it goes up even higher. For example, even though a record low number of consumers say that now is a good time to buy, home prices in Las Vegas jumped 2.4 percent in a single month, and Zillow forecasts that homes could spike another 16 percent throughout the next 12 months as low inventory and rising rates push people on the sidelines to make a purchase.

Although in terms of a hedge against inflation and what you could do in terms of rising values, here's what I found surprising. One, Bitcoin has seen a rather dramatic surge of about forty-three thousand dollars in light of current events, and that leads a lot of people to believe that it could be a great hedge against inflation. However, Bank of America argues that it trades more like a risk asset since its price is highly volatile and largely uncorrelated with gold. It also does not appear as though there's any clear correlation between Bitcoin and inflation, even though Bitcoin does seem to do well during times of economic uncertainty, and JPMorgan raised their long-term price prediction all the way up to a hundred and fifty thousand dollars.

Second, a lot of people refer to real estate as a hedge against rising inflation, and traditionally they're right. Historically, home prices do tend to rise alongside inflation. So, if we see three percent inflation every single year, we should in theory see home prices also rise by three percent. On top of that, by locking in a low-interest fixed-rate mortgage, you're able to gain access to money today, paid off with future dollars, which should in theory be worth a lot less, effectively making it easier to pay off over time.

Third, besides the normal dollar-cost averaging into the markets on a regular basis and holding, and then do nothing advice that you probably heard a million times by now, the most practical piece of advice that I could probably tell you right now is to simply shop yourself around the job market to make sure you're getting paid top dollar. The fact is, most employers will not voluntarily give you a raise to reflect the current job market. So, if you're not out there constantly learning new skills, making yourself indispensable, and seeing what else is out there, then most likely you're missing out and earning a lot less as a result.

In fact, it was reported that employees who stay with the same company for more than two years get paid 50 percent less than those who leave. So absolutely use that to your advantage, except of course if you work for me, in which case, uh, ignore that. Maybe we cut that out. But now seriously, during times like this, I'm a huge fan of focusing on only what you can control. Even though you cannot control whether or not Chipotle raises the cost of your burrito, you can control your positioning in the workforce, being a price-conscious spender, investing consistently, diversifying into assets that have hedged against inflation, and thinking long-term.

By sticking with the basic principles that have worked for decades, you're going to be putting yourself in the best position possible financially to come out ahead with way more money. And of course, hit the like button and subscribe for the YouTube algorithm if you haven't done that already because it helps me out a lot, and it's totally free. So thank you guys so much for watching. Also, make sure 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.