July 21, 2021

Now, Inflation is Unavoidable

By: Samuel Mangold-Lenett

Disclaimer: The author of this piece is not a financial adviser, nor is the following piece to be interpreted as financial advice.

Unless you’ve been living under a rock, or are simply too rich to care, inflation is back. And, it’s back with a vengeance. 

According to data released by the Federal Reserve Bank of New York in mid-July, the median one-year inflation rate hit 4.8 percent. In the past year, inflation grew 5.4 percent. The American economy is struggling to recover post-COVID, and at the same time, we are experiencing the highest levels of inflation since the Great Recession of 2008.

The superfluous surge of spending by the Biden-Harris administration has created inflation so severe that it will be felt for years to come. Not only that, but the Federal Reserve has expressed zero intention of curbing the influx of money that they are currently printing, and Janet Yellen — the U.S. Treasury Secretary — foresees several more months of inflation in our immediate future. 

Economists with Deutsche Bank — one of the world’s preeminent financial institutions — have characterized this inflationary period as a “time bomb.”

Inflation may make the numbers in our bank account appear larger, but the spending power that those dollars have decreases because those numbers are artificially inflated. It decreases the actual spending power of currency which subsequently decreases the value of our investments and assets that are tethered to the inflationary unit. 

There are ways to insulate your wealth against inflation. Assets that are physical in nature, meaning their value is intrinsically tied to their physical presence, are historically effective hedges against inflation. Precious metals (gold, silver, etc.) and real estate are two of the most commonly owned physical assets. The ultra-wealthy will even store their wealth in fine art. 

Investing in anything, however, carries risks along with the incentives that inspired us to originally stake our claim. Gold coins are taxed at a higher rate than the capital gains on securities, real estate requires a considerable amount of cash for the average person to invest, and you never know when your billionaire friend will trip ad rip a hole in your $70 million Picasso.  

Inflation devalues currency and the rate at which America is currently experiencing inflation — along with the projected future inflation — does not paint a pretty picture. It’s reckless to assume that the United States is irreversibly headed towards hyperinflation a la Venezuela. 

But, the fact of the matter is that inflation is devaluing the US dollar, subsequently weakening the spending power and savings accounts of the American people.