More and more analysts and economists are starting to point out that we are now entering something never seen before. It is not just about the inflation, there are several other factors, which are now forming something that could be described best as a perfect storm.
Leading Western economies, such as the United States or EU, were heavily indebted even before the outbreak of the global pandemics. So the starting position of the public finances was not good. Now enter pandemics, never-seen before public spending on aid, health care and social services, which was funded by printing more money.
Not only rising inflation
Printing money results in higher inflation. Soaring inflation reaching levels, not seen in decades in most countries, would be enough to deal with for economies. 80% of all US dollars in existence were printed in the last 22 months (from $4 trillion in January 2020 to $20 trillion in October 2021). And that is the United States.
Pandemic is not even over yet and we have the Russia’s invasion of Ukraine, pushing higher the prices of oil, gas, wheat and other commodities.
Problems with global supply chains
“Surging food prices on the back of Russia’s invasion of Ukraine are emerging as one of the key economic legacies from the conflict. … There are also predictions for a major reshuffling of global supply chains and reserve currencies due to the conflict,” said one of the world’s bestselling financial historians, Columbia University professor Adam Tooze.
Perfect storm forming
“What may turn out to be the most consequential thing in the long run is the impact on the food supply system, especially for low income consumers. When you combine that with the rise in interest rates that we are seeing and the worries that were already prevalent after covid about a potential debt crisis in the low income world, this is a bit of a perfect storm from their point of view”, said profesor Adam Tooze.
What will the storm result in?
In the short term it is reasonable to expect even higher inflation rates, more bankruptcies, higher unemployment and economic depression. The perfect storm will lead to restructuring of the current global supply chains and to deglobalization, which in the long turn might not be only a negative outcome as the economy of ever increasing growth was not sustainable.
“Cooling an over-heated, capacity-constrained, hyper-financialized economy, in a time of deglobalization and war, without first tightening financial conditions is proving rather difficult”, said Eric Peters, CIO of One River Asset Management.
What can you do about it?
Diversify your assets. Do not place all your eggs in one basket. If you can, invest in some assets that are not reliable on the fiat financial system, but do not finance these investments with debt.
Do not take on further debts. This is essential specially for consummer goods, and also try to repay your current debts if you can. Consolidate your debts in advance if you can’t repay now.
Support local businesses and communities. Find out and learn to buy from and thus support more your local goods and service providers. That will also support your neighbours and fellow citizens and in return incrase the opportunities for your own well-being.