The Bad Economic News Will Continue Until Morale Improves

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Foreclosures are not unusual in a recession.
Foreclosures are not unusual in a recession.

Growing up during the cold war, we worried about “the bomb.” The United States and the Soviet Union may have been practicing the art of Mutually Assured Destruction, but that didn’t mean someone wasn’t crazy enough to actually push “the button” and send waves of bombers and intercontinental ballistic missiles back and forth like it was a real-life version of the movie War Games.

Today, we have a different kind of bomb to worry about. I’m talking about the “Debt Bomb,” and the United States has no one to blame for this danger but itself. Our political class has been crazy enough to inflate the debt until it becomes a deadly bomb, and the ticking of the clock is getting faster as the countdown to the explosion nears zero.

A $34 trillion deficit—BOOM!

But we are not the only potential victims. I just read that 182 countries are running a budgetary deficit. BOOM, BOOM, BOOM! That’s not a bomb, that’s a carpet bombing. It’s enough to bring on a global collapse.

The Debt Spiral

There’s a reason they call it a debt spiral. The deeper in debt you get, the faster your debt grows and the harder it is to get out. When the Great Recession hit in 2008, the U.S. Government debt was $10 trillion. The additional $24 trillion came on quickly, with $11 trillion in new debt since COVID.

When people realize they don’t have enough income to pay their bills, the smart ones spend less. They cut back on discretionary spending and buy what they need rather than what they want. They don’t go on vacation. Most will cook at home more often and eat out less, often buying cheaper groceries. When gas prices go up, they drive less. It’s no fun, but it works; I’ve done it.

Politicians can’t cut back because they think it will hurt their chances of reelection. They just keep spending and kicking the debt bomb down the road.

From a politician’s perspective, the simple solution is to “print” more money. When that gets out of hand, the politicians raise taxes. But they can never raise taxes fast enough to generate sufficient income to pay down their debt. Even if the government confiscated all the money, investments, property, and other assets of Jeff Bezos and Elon Musk, they would get less than $400 billion. The U.S. will need more than twice that just to pay this year’s interest on the $34 trillion it owes. Taxing the rich is not the ultimate solution, even if it sounds good.

Our GDP is about $27 trillion. That means if the government confiscated every dollar made by the sale of every single item produced in the U.S. in a year, they would not have enough money to pay off the debt.

Warning Signs

There are several warning signs that the debt situation is out of control. Inflation is a big one, and one of the most immediate danger for consumers because it is insidious and devalues not only their income but their savings. When the government prints more money or borrows it from the Fed, it increases the money supply, which results in inflation.

As the government has to increase its borrowing, inflation will grow faster. We are borrowing $1 trillion every 100 days, the fastest pace ever, and one that was unheard of just a couple of decades ago. What happens when it is borrowing $1 trillion every 60 days, and then every 30? That’s when we will see a shift from inflation to hyperinflation.

Right now, the administration is doing anything it can to avoid cutting its spending. Rather than conserve money, it is increasing taxes. Rather than cutting back, it is trying to spend its way out of a recession. That’s like trying to eat yourself skinny—it might feel good, but it doesn’t work.

Recession

A recession is also a warning sign, and when you have a recession during a period of inflation, the result is stagflation, the worst of both worlds. As hard as it may be for people to keep up with rising prices over the past few years, it will be even harder when they get laid off or their employer closes or files for bankruptcy, which you can count on happening during a recession.

Another warning sign is when the banks start collapsing. Banks fail when their investments and assets don’t keep up with their liabilities, a problem exacerbated by inflation. It can occur when people stop paying their mortgages, car payments, HELOCs and other loans, or when companies walk away from loans made on commercial real estate or other business assets.

As you can see, we’ve seen a few warning signs already…

How to Prepare for Inflation or Stagflation

The most important thing to do when facing a future of inflation is to preserve your income. Likewise, a recession is not the time to get laid off. (You might have heard the old saw: When your neighbor gets laid off it’s a recession, but when you are laid off, it’s a depression.) Do what you can to improve your odds of staying employed and seek other sources of income, such as a side gig.

If you have investments, do some research and consider shifting some of your investments to those that historically have done well in inflationary times. If you have savings, consider shifting at least a portion to tangible investments such as farmland, gold, silver, ammunitions, and long-term storage food. You could also spend some of your savings now, buying things you will need in the future because inflation will make them more expensive down the road.

You can also invest in yourself by learning new skills, by doing home improvements, or by moving to a safer location. As my frequent readers know, I’d recommend a rural one with low population density.

Find ways to eliminate or reduce your bills. For example, pay off your car loan and stop running up credit card debt. (You know it’s costing you somewhere between 22 and 29 percent annually, right?) Plant a garden, raise chickens, and find other ways to be self-sufficient.

Inflation is Making a Come Back

Pretty much every government financial report over the last two months has shown inflation increasing. Of course, you don’t have to read the news to know that; just look at the price of gas or at your grocery bill. Ask yourself if your paycheck is increasing as fast as your housing payment, the cost of insurance, or your heat bill.

The best way to survive hyperinflation may be to read what has worked in other countries where they have experienced hyperinflation, from the Weimar Republic to present-day Argentina. From what I have read, the best way to survive is to be a producer or provider. As someone who produces goods or offers services people must have, you can adjust your prices to keep up with hyperinflation, even if that means adjusting prices daily.

It’s been months since I’ve covered inflation this extensively; it was a more common topic two years ago. Sadly, I’m writing about it because it looks like inflation is coming back. The debt bomb may not have exploded yet, but every time the government kicks the can down the road, it doesn’t move as far.

One day, the bomb will go off. Brace yourself for economic impact.


Note: I am not a financial advisor and nothing in this post or elsewhere on the website should be considered financial advice. This post is based on my opinions and experience gained through 30 years of prepping. Before making investments, do your research and/or consult a financial advisor.

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