It's probably stagflation

It’s probably stagflation:

Stagflation is likely coming.

I’ve written extensively about how I thought inflation was coming post this next market crash, but recently had a post talking about deflation and if my whole thesis is wrong.

Now I think I’m wrong again because stagflation is likely coming, similar to what Japan had in the lost decade in the 90s and the US had in the 1970s.

Let me explain.

First – what is stagflation?

Stagflation is characterized by slow economic growth/recessions along with inflation. It happened to America in the 1970s with the 2 oil shocks.

Essentially a market crash causes a downturn in economic output for a country while also having increasing inflation. In this case it’s because of the increasing money supply the Fed has created in the last year ever since Covid hit. They’ve let the money printers run way too hot, and a lot of people are about to suffer because of it.

The upcoming stagflation is going to end up in some type of depressionary environment globally because of a number of factors.

Read this article recently from Nouriel Roubini, who’s an economist at NYU. He is famous for predicting the stock market crash in 2008 because of the bubble in real estate, amongst many other things. He recently wrote about stagflation and had a great interview about the upcoming crisis

The article mentions 10 items that’ll lead to a decade of global depression and instability in the world. It’s weird to see things that I’ve been thinking about recently be reaffirmed by someone a year ago talking about the exact same things.

Here are the 10 items summarized:

1. Increased debts causing increased risk of defaults

2. Demographic time bomb in developed nations where more money has to be allocated to healthcare for aging populations

3. Growing risk of deflation – something I thought about recently

4. Currency debasement as governments try to fight deflation through money printing

5. Digitization of the global economy accelerating the pace of automation

6. Deglobalization as countries on-shore manufacturing of key industries fragmenting the flow of goods and services

7. Rise in populism as wealth inequality increases

8. Geopolitical standoff between the US and China

9. New cold war between US and its rivals, China, Russia, Iran and North Korea through cyberwarfare

10. Environmental disruption caused man-made disasters such as pandemics and climate change.

These are all concepts I’ve been thinking about for a while and it’s interesting to see a leading independent thinker confirm my ideas about the market collapsing into a depression that could see a decade of instability around the world.

It’s hard to see how governments are going to get around all of these issues. 

Blame will likely be placed on retail investors first because of AMC/GME going to the moon but all these factors exist outside of the meme stock situation. The US federal reserve continues to print money like no tomorrow assuming they’ll be able to retain the world’s reserve currency status forever.

That’s not how history works.

Every empire, no matter how big and dominant they’ve been in history, has always fallen to a rising power. It’s an inevitability. The US is trying to print it’s way out of a crisis but all that’s done is reduce the value of its currency.

Read another article on Reddit today talking about hyperinflation, something which Michael Burry started talking about in January of 2021. I’m more convinced this is coming as well, similar to what happened to Weimar Germeny post World War I before the rise of Hitler.

Hyperinflation takes a while for it to be seen by the world, but every day the US government continues to print money and pass government bills that increase the money supply, every day they inch closer to hyperinflation with debasement of their currency.

The problem is they're in a death trap right now. One of the only ways out of inflation is increasing interest rates, but that worsens a depression even more, especially for those at the bottom.

So many people and companies have taken out massive amounts of debt from the banks because interest is so low. Money is free right now. The US government has run their deficit up like crazy and eventually they’re going to have to pay it back.

The problem with raising interest rates is the US GDP isn’t enough to pay back the interest on the debt to US treasury owners.

Then what?

I have no idea.

This is where I need an economist to explain to me what’s happened before in history.

My smooth brain assumption is that America could default on its currency, something which seems absolutely impossible.

What else are they supposed to do? They can’t service their debt if they increase interest rates and if they can’t pay back their debt holders, they have to default. The longer they wait on printing more money, not raising interest rates and letting hyperinflation happen, the worse it’ll be when they eventually have to push interest rates back up.

It’s going to be a wild decade in the 2020s because there are so many different factors all converging.

The massive rise of big tech. Inequality rising. Cyber attacks increasing. Aging populations. Climate change. The Covid-19 pandemic. Increasing debt levels around the world. The rise of populism. The rise of China. The race for 5G infrastructure. Decoupling of supply chains. Increasing on-shoring of manufacturing. Chip shortages. Money printing. Infrastructure bills.

All of these things are happening outside of what’s going on with the meme stocks.

The next decade is going to be fascinating.

Educate yourselves. Become antifragile. Learn about the world and invest in your education. The more you understand about how the world works, the better prepared you’ll be when things eventually turn.

For a nice summary article of what to invest in during stagflation, check this out.

Governments in the future need to invest in human capital and get their population ready for the digital world, but don’t wait. 

Do it yourself.

The Internet has democratized all the information. It’s up to you to do the work.

As Effie from the Hunger Games said, may the odds be ever in your favour.