Will the new normal becomes a remake of the film "Back to the Future," featuring a 1980s mix of higher inflation and interest rates?
It will take a monumental effort to tackle the underlying elements driving higher costs in energy, wages, housing — and more.
If inflation becomes imbedded in the fabric of the economy then our savings, investments, and retirement plans are gravely at risk.
So, how did we get here?
A complex mix of issues include:
1.) An overly accommodating Federal Reserve policy keeping rates too low for a decade.
2.) A multi trillion dollar Federal spending spree whose gargantuan outlays during the COVID-19 pandemic dwarfed the outlays during the 2008-9 Great Recession.
3.) Global economic shutdowns in 2020 to 2021 that closed most businesses, energy refineries and production, supply chains, commercial activity and travel.
4.) Seismic supply shock that reverberated globally as economies restarted their engines and revealed inadequate energy production as well as major worker shortages.
While all four problems caused disruption, worker shortages may be the dark horse fueling inflation for the foreseeable future.
In his 2020 book, "The Great Demographic Reversal," former Bank of England economist Charles Goodhart outlined his theory that worker shortages are here to stay.
In his view, decades of low inflation was primarily the result of millions of low-wage Chinese and Eastern European workers joining a global economy.
This cheap labor pushed down prices of products exported to wealthy nations like the U.S.
As working age populations decline globally and labor becomes more scarce, acute labor shortages and rising wages in the U.S. and Europe may become the norm.
If we couple higher wages with energy resource shortfalls, every industry from food production to transportation and power generation is impacted by higher prices.
Plunging currencies in Europe and the United Kingdom are a clear signs of global market concerns over their energy crisis, stagflation and economic stability.
How long will it be before America is pulled into that quagmire?
Clueless political leaders who claimed inflation was transitory keep the foolhardy spending spree going as evidenced by the "Inflation Reduction Act" (IRA) and student loan forgiveness program.
This uncertainly and lack of leadership has led to historic stock and bond market downturns damaging our investments, retirement savings, pension fund performance.
The S&P index is down 23.3% year to date. Global bonds are down 20% .
This is the first bear market in bonds in 76 years!
U.S two-year treasury at 4.32% is the highest yield since 2007.
Not only are nest eggs being clobbered, but painful price increases are hitting senior-care homes, assisted living facilities, and caregiving.
Rising expenses were already challenging millions of households nationally and may soon become unbearable burdens if the pricing trajectory continues. Which is likely.
A sobering thought as the the number of adults 65 and older living in the United States reached an all time high of 54 million in 2021 from 25.5 million in 1980.
They now account for about 16.5% of the nation’s population according to the Census Bureau. By 2030, the 65 and older population is projected to be over 71 million.
The 75 and older population is projected to be over 33 million.
The U.S. Census Bureau also reported that 40% of Americans between the ages of 56 and 64 don’t have any retirement accounts.
Even more startling is 56.5% of working-age women don’t have a retirement account, nor do 63.2% of Black working-age Americans and 71.7% of Hispanic working-age Americans.
As costs escalate, a far greater portion of seniors will be impacted than in past history and caregiving costs may not dissipate when inflation eventually settles down.
The annual cost-of-living increase in Social Security benefits will be announced on Oct. 13 and expected to increase by 8.7%.
It will be the largest hike since 1981, although still not able to cover all retirement costs — particularly during inflationary periods.
What solutions can we count on if inflation does not settle down?
How can the midterm elections ahead make a difference?
A.) We must ensure that political leaders don’t spend our tax dollars needlessly or recklessly again.
B.) Let's please live in the real world where our needs are met with greater energy resources like natural gas and oil — not less — until renewables are able to scale.
The oil price shocks of the 1970s, spurred in part by price controls, led to the rampant inflation at the end of that decade.
We can not let misguided Climate activists repeat this history.
And . . .
C.) We better get prepared for shortages of workers in many job categories.
Our energy should be directed toward solving big problems not just throwing money at them. Money isn't cheap anymore.
Clara Del Villar is Director of Senior Initiatives at FreedomWorks Foundation. She has served in senior roles in Investment Management, Private Asset Management, and Capital Markets. Her entrepreneurial ventures involved digital media as Founder, CEO of The Hispanic Post; energy tech as founder of InEnergy and health tech. She is a former advisor at 60Plus Foundation. Currently. She is also a Board Director at General American Investors Co. and Executive Committee of Weill Cornell Women's Health Symposium. Read Clara Del Villar's Reports — More Here.
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