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In this video, I forecast: Inflation, Deflation, Stagflation

We’re going to be covering the risk of inflation, deflation & hyper-inflation in the Western World, that means the USA, Canada, Europe & even Australia and NZ.

Now, before we can get a good forecast of what might happen in the economy, I’ll first need to cover the fundamentals and explain inflation, deflation and even the risk of hyperinflation.

So let's start with what is Inflation?
Inflation is a decrease in the purchasing power of your currency due to a rise in prices of goods and services. In simple terms that means that $10 in your pocket loses value over time as prices rise, and can no longer buy you as much as it did before.

An example of this is snacks, have you ever noticed how snacks seem to be getting smaller and smaller every year but the packaging size & price stays the same

Most countries consider a 2% inflation rate positive. But if the inflation rate drops below 2% this often signifies a decline in economic growth. But if it goes higher than 2%, it means your currency is losing value, meaning prices are getting higher and making your weekly groceries more expensive.

While the value of the $10 bill hasn’t changed, the amount it can buy has decreased over time. The simple reason for inflation is because the monetary supply grows at a faster rate than the goods and services we produce.

During the first few months or so that a country is hit by inflation, people tend to spend more, because if the value of currency is going down, common sense dictates that you should stock up now before your currency becomes less.

This is similar to the mentality of panic buying we’ve been seeing. If there’s a chance that you might not be able to purchase your essentials, people panic buy and “hoard” them

Inflation hasn't been a problem since the 1970s, due to monetary tools like interest rates rises. However, interest rate rises come with their own big problems. As I said last week, any rise in interest rates would have a severe negative impact on the housing market, because the more expensive credit becomes, the less people can afford houses, therefore driving down the price of the housing market.

Housing crashes come from high unemployment as well as high interest rates.

So imagine you put $1,000 into your savings account for 1 year and you earn interest of 0.1%. At the end of the year you might think that you will have earned $1 in interest, which is true in theory.
But in reality if inflation was 2% for the year, you will have just lost $20 worth of purchasing power, so your $1,000 is really only worth $981.

Now lets look at deflation
If inflation is a decrease in the purchasing power of your $10, then deflation is an increase in the purchasing power of your $10

But Deflation is bad for the financial market and for you taking out mortgages and loans.

Falling prices reduce consumption as people hold out on making larger purchases like that new car for example, due to the belief that prices will drop even further, as has happened throughout history.

During the Great Depression, the unemployment rate ranged from 20% to 32% at its peak. Shadow stats already put unemployment past the 20% mark just last week meaning there are some similarities already with the Great Depression where we saw a period of deflation.

During this period, prices dropped an average of 10% yearly between 1930 and 1933.

It’s very possible that the recent health crisis could trigger deflation as a result of rising unemployment and people’s reluctance to spend the little money they have, which will then reduce the demand for goods and services and could result in a surplus.

Finally let's look at Hyperinflation: This is inflation on a much larger scale, usually defined as 50% or more increases per month.

Hyperinflation is usually caused by one of three things:
1. A weakened economy such as what happened during World War II.
2. Large government debt Vs it’s GDP
3. An uncontrolled increase to the monetary supply such as what happened in Venezuela from 2016 onwards...

If we look at what happened to Germany after the first world war where they decided to print money in order to pay off their debt. They were basically cheating their way out of needing to pay the debts they owed.

DISCLAIMER
This video is for entertainment purposes ONLY.
I am not a financial advisor or attorney. These videos shall not be construed as tax, legal or financial advice and may be outdated or inaccurate; all decisions made as a result of viewing are yours alone.