Inflation in 2021
What is the answer to the title’s question, ‘What costs $1.9 Trillion?’
Hint: It’s not a website, it is Congress’ next $1.9 Trillion stimulus bill.
Congress seems to be fond of conjuring money out of thin air and passing many trillion dollar stimulus bills this year.
Keep reading to learn more about how much debt the US has, how many trillion dollar bills Congress keeps passing this year, why I’m concerned about future inflation, and how owning assets like websites and real estate plays into that.
Here is the final Part 3 in my duplex real estate investing email series about inflation and how that tied into my duplex real estate investment decision.
*again this is not financial advice or predictions, these are simply my own thoughts about my own life I am sharing in an email, end disclaimer here*
how I feel about inflation
the media + fear + the government
This past year has been a scary demonstration of how the power of online media, fear and hysteria can cause regular people and politicians to take extreme actions rooted in fear and concern with how they think “others” perceive them.
Politicians all over the world, including the US, seem to feel they have unequivocal power to shut down businesses without any type of democratic vote and take away people’s freedom of choice.
“Let’s shut down the economy and then print trillions of dollars” – Congress
Then, because the US government decides it has the power to keep people locked in their houses and to shut down the economy, they also decide to print trillions of dollars with no regard for how it will affect the country long-term.
Ask anyone, a stranger on the street or your friend who doesn’t understand basic finances, and they’ll be able to tell you the government has printed trillions and trillions of dollars this year. Obviously doing this has repercussions. You can’t just print trillions of dollars of debt and think life will just go on as normal indefinitely.
As the US isn’t on the gold standard anymore, every time the government prints money, when that money is used, it makes the value of all the other existing money a little bit less.
What is inflation?
Even in regular years of government money printing and overspending, we get inflation each year where the money you have saved becomes worth less.
Simon Black, one of my favorite financial email lists, explains the issue with stats:
- Last year the Fed increased the supply of US dollars by 26%– the single largest annual increase since 1943.
- The Fed has almost doubled its balance sheet in the last 12 months, and nearly 10x’d its balance sheet since the 2008 financial crisis
- The latest COVID stimulus bill Congress passed, is $1.9 trillion.
- $1.9 trillion is nearly 10% of the size of the US economy, and roughly 50% of expected federal tax revenue this fiscal year.
- In simple terms, the Fed ‘prints’ money (albeit electronically) and sprinkles it around the financial system.
Each time the Fed ‘prints money’ it is a form of debasement, not much different from ancient Roman emperors cutting corners by reducing the purity of their gold and silver coins.
What are the effects of inflation? Does it really matter?
Looking at history, debasing the currency causes inflation.
You may have heard of some of the extreme famous historical episodes, like Zimbabwe, Venezuela, or the Weimar Republic, where the government’s crazy money printing caused hyperinflation and now hundred trillion dollar bills are used as wallpaper.
There are countless ‘quieter’ examples of inflation- like Brazil, where inflation is now over 5%, or Turkey, where the annualized inflation rate is about 15%.
15% a year isn’t hyperinflation. But it does make life pretty uncomfortable, especially when wage growth fails to keep pace. It’s still like losing 15% of your saved money each year, like paying a 15% ‘invisible tax’.
Even in a yearly 15% inflationary environment, each year people find themselves much poorer and worse off.
What is the US thinking?
Even with all this historical data of how printing money can lead to inflation and lower everyone’s quality of life, the US government puts its little head in the sand and thinks its easier to print money and throw it in the air and simply ignores the fact it can have consequences.
What will happen to the US dollar?
The truth is no one knows.
The insane government money printing of this year makes me think inflation is going to get very out of hand and make money sitting in bank accounts worth a lot less. Who knows how soon, 2 years? 10 years? Who knows how much less, 10%? 100% less, or more? 1000% less?
Whatever the answer to these questions is, it’s not something I want to wait around to find out.
Instead of housing money in banks you always have the choice to house it in an asset that has true value.
The most extreme example of worst-case inflation would be, say the US dollar became completely worthless, similar to how the government overprinted money in Zimbabwe and now people use hundred trillion dollar bills as wallpaper.
Why I’m focused on buying assets
In the most extreme case, even if the US dollar went to zero, a business that still has customers would still have value, a website still selling items would still have value, gold would still have value, a farm would still have value, homes would still have value. There are many items that have value that is completely separate from the US dollar, and real estate is one of them.
Technically stocks are representations of business value, and can be an asset separate from inflation, but they are also based on the emotion of buyers, and on underlying company performance, which I feel has a disconnect from stock prices right now.
I had initially been hesitant to buy real estate because of the property taxes you have to pay, and the maintenance costs and managing of tenants.
Real estate has much higher base costs and recurring expenses than owning a website, and it can be more of a hassle in some ways, which are reasons I had never considered looking into owning any before along with the fact it is simply more expensive than purchasing other types of assets such as gold or websites.
The current crazed government printing and economic control means there is potential for business growth to slow and inflation to happen is why I ended up making my duplex real estate purchase, and am currently focused on purchasing assets.
Now you know my full reasoning of why I chose to move money from sitting in cash or stocks into real estate.
What would Warren Buffet do?
I’ll leave you with this Warren Buffet quote:
“Productive assets such as farms, real estate, and yes, business ownership, produce wealth– lots of it. Most owners of such properties will be rewarded.”
We can all choose where we invest our money and if we place it in wealth-producing, valuable assets or if we’d rather purchase Shawn Mendes digital NFT art. At the end of the day, do what makes you happy, even if that means owning a shirtless Shawn Mendes digital token.
Also, of course my Ad & Affiliate Disclaimers: I often feature products in the form of paid ads which are clearly marked in the email. Also, I often use and recommend affiliate products (only really good ones I actually like and use). If you use any of these products with my link or code, I get a commission, which is something I have to let you know. I’m also letting you know I get compensated for any ads in this email. You can always ask me about specific products or send questions and I read (and currently try to reply to) every one, so always feel free to send your questions.
Financial Disclaimer: *Nothing in this newsletter is financial advice, and I’m not a financial advisor. I simply share my own thoughts and actions about my own choices and thoughts. You may find or talk to your own financial advisor if you are looking for financial advice or direction.*