Inflation, inflation, and inflation. If you listen to the news, the topic of inflation is on the minds of people. They know it as higher prices for everything. If you listen to the so called experts, they parrot a number ranging from an official rate of 4.6 to 5.2 %. This creates a problem, since many items that we purchase or consume appear to have increase more than a 5.2 %. There is another problem on what items are listed and examined. One has to wonder who is doing the calculations–if they ever bought food, gas, and other staples. We all have everyday examples of what we have purchased 6 months to a year ago, and what we are paying for the same item now. We feel it in our pocketbooks. We want to buy steak but our budget only allows us to purchase chicken. And somewhere in the world of government thinking, there is a formula to take this into account. And its even sadder that some Government official thinks this is OK.
So the stage is set.
1. We have an imperfect science on how inflation is measured.
2. Inflation has no regard on the impact to lives of family / households.
3. Governments do not like to see interest rates rise, since the cost of borrowing huge amounts of money will be more costly to service the debt. It also angers the population, since their costs of borrowing will increase.
4. Lastly, we have a global supply problem where goods are not getting from Point A to Point B, and when it does, its costs more for transportation, which increases the overall cost of everything and is passed down the line.
Winners – Debt Holders
Current Debt holders wins with inflation because the debt is locked in lower rates. How do they win? Your debt does not increase and is fixed at a rate that is lower than the inflation rate. Which is why our Canadian government pays our national debt at low interest rates, so they have the ability to borrow more and larger amounts due to inflation. Its also pushing the problem of who is going to pay for it one day.
Canada’s Federal Debt as of January 20th. 2022 – Source: www.debtclock.ca
Your Share: $ 31,644.05 Debt per Hour $ 17,671,232.00
The winners are older households, like Baby Boomers, if they hold low rate mortgages. You have inflating house prices so the underlying asset is going up while their debt is locked in at low rates. They might sell their house at a fantastic profit, but if they have to buy another house or condo, they will be paying an inflated amount.
The losers are first time house buyers that are competing for housing at an all time high.
The poor, middle class and savers are the most affected group. Many households are living paycheck to paycheck. If the wolves at the door had pups, I would sell them for extra cash. This is not to make light of the situation. Our incomes are not keeping up with the increases of what we are purchasing. And it seems that what we are buying is increasing up every month. The middle class which was viewed as the backbone of the Canadian economy in the past has changed. Your great asset might be your house. Yes, its worth more with inflation, but you have to have a place to live. It makes no sense to sell high, then you have to buy something else at higher prices to live. And all services for the house are increasing. If you have savings with a financial institution paying near to 0% to 0.75% interest and inflation running at 7% you are losing money unless you earn 7%. So you are losing purchasing power each year. A good case is a riding mower, which has increased anywhere from 5% to 8% higher. In the past you might have saved the money, and when your balance afforded you the ability to purchase the mower you went shopping with cash in hand. Today’s situation is the mower is increasing in price faster than your ability to save money, which is losing purchasing power. If you could secure a low interest loan, it would make more sense to take out the loan and acquire the mower before the next increase in price.
Inflation robs people in other ways. You are looking for places to invest, before the purchasing power erodes it’s value over time. Savings or so called secure options are not paying the interest to keep your head above water. So many people are taking risky options, like high priced stocks, digital currency, real estate. Many young Canadians see the increases in real estate and feel at this rate, they will never be able to afford a house. They see past investments of their parents destroyed and are disenfranchised with current financial institutions. So they have the ‘You only Live Once’ attitude (YOLO) which has helped the boom in Crypto currency. They also value their time and environment, and are looking for none monetary satisfaction in their lives.
The Wealthy Get Wealthier
The COVID pandemic has been a boon for the upper top 2 to 5 percent. They have most of the assets in Canada. And they own assets that have gone up. Many have stocks, real estate, classic, luxury / exotic cars, art, wine and spirits and possibly crypto currency, are named as the best asset performance in this global pandemic. They concentrate on assets that increase in value and stay away from debt of any kind. Unless it is to their advantage. Inflation can not be blamed on the upper percentages.
This is caused by central banks and Government direction or misdirection. When the Government money printing presses are working 24 hours / 7 days a week, flooding the economy with more and more dollars causing the value of the dollar to become more worthless each and every day.
The Government then uses this money to pay off its debt. The increased money supply then devalues all the currency in circulation. The bigger question is when will we have to pay for all of this and who exactly will be paying. The idea of pushing the problem down the road to future generations is what they (as in the government) are hoping for. I personally think it will be my grandkids children.
Possible Solutions – In my dreams
1. Everything that the Government does should be for the care and well being of all Canadians.
2. Reduce the red tape. Its getting so bad, that we need a permit to get a permit.
3. Stop the money printing presses.
4. Eliminate all Non-Government Organizations that do not serve or benefit all Canadians.
5. Stop trying to be the darling of the world and trying to save the world with hard earned Canadian tax payer’s money. (If the carer does not take care of him or herself, how can we help others.)
6. Promote Canadian industry, farmers, small business.
7. Build up our health care, our education and native populations. 8. Allow the free market to operate. 9. Give Canadians the tools to make their own decisions. If there are any questions, refer back to point 1.
DISCLAMER: This article does not provide any financial advice of any sort. Please consult with a licensed Charted Accountant or financial specialist. Everybody’s situation is different and I can not comment on any aspect on this subject matter. This views and opinions contained in this article are my own.