Tag: Inflation

The New Great Depression Book Review

The New Great Depression: Winners and Losers in a Post-Pandemic World by James Rickards beckoned from the new releases stand at the public library. This non-fiction work strives to evaluate the possible economic fall-out from the Covid-19 pandemic. The book includes a recap of early 2020 events as well as the author’s thoughts of outcomes in 2021 and beyond.

Rickards uses the first two chapters as a summary of 2020 social events. Naturally the novel coronavirus features prominently. But he also discusses the important consequences of political responses to the pandemic.

First, is the outcome of lock down’s. Rickards evaluates both the economic and health responses to the strict governmental edicts in 2020. He also discusses the tentative connection between the virus, the lock down and the social unrest that roiled through the United States and spilled over to other parts of the world.

The New Great Depression

The author turns toward economic thoughts in Chapter Three. He posits that a new great depression will mark the February 24, 2020 market downturn as a pivotal date. However, he believes the economic weakness began in the latter part of 2019 and the pandemic accelerated the time table.

Unemployment due to lock down layoffs figure prominently in the discussion. The service industry accounted for many of the job losses. Unlike manufacturing, lost services are just that-lost. A missed haircut in June will not be recaptured work.

Rickards theorizes a second wave of unemployment among higher paid labor due to the output loss from the first wave. He further postulates that output and job recovery will be hindered by the June 4, 2020 Congressional Budget Office report of unemployment benefits greater than employee earned income. This disincentive to work, if lasting, is of great concern. Rickards expounds on this point.

Modern Monetary Theory

Modern Monetary Theory (MMT) features heavily in the author’s warning of possible deflation and a potential for a new great depression. Much of this economic discussion is compelling. MMT and the overwhelming National Debt are the backbone of the author’s theory of deflation. His analysis is a bit depressing. As it should be, if his analysis is correct.

The three arguments for deflation hinge on a greater savings rate, a decrease in spending and a tightening in money velocity. All three are occurring now. But will that change once the pandemic recedes? Rickards says no. I am not so sure, although I concur with his thoughts on the dangers of MMT and the horrific level of debt.

Investment Possibilities

Even though much of The New Great Depression is sobering, the author outlines steps for individual investors to prosper. His proposal relies heavily on Bayes’ theorem, an applied math formula which many may not be familiar with.

Rickards also discusses diversity in investment. He does not consider a wide array of stock companies as diversity. I found his break down of investment disbursement quite interesting. And contrary to current thought.

While I am a bit more optimistic about a return to consumer spending and firmly believe in pent-up demand, I am not totally opposed to Rickards thinking. As readers know from my Inflation Check Challenge, I tend to think inflation is in store. But, The New Great Depression definitely provides a legitimate counter point. I believe all those in the audience with interest in the economy will greatly benefit from reading this author’s point of view. Much food for thought!

Inflation Check Challenge

The inflation check challenge is a direct response to the higher gas prices on the return trip from Florida. In just ten days, there was a notable increase at the pumps. This prompted me to pay closer attention on a trip to the grocery store where things also seemed a wee bit pricier. So, I decided to issue the inflation check challenge to my readers.

How the Inflation Check Challenge Works

The first step in the inflation check challenge is to create a basket of goods to keep track of price. Items should be products (or services) that are purchased on a year-round basis. Thus, seasonal goods such as Valentine Candy or Easter Baskets are eliminated. The ideal basket will include ten to twenty consumable items. Food, gas, and medicinal items make the bulk of the basket. A key is to make the list reflect your regular spending habits.

Next, either buy or price these goods before the end of the month. This will create the base price. However, price is not the only indication of inflation. In some cases, suppliers are holding the price steady but decreasing the amount provided. For example, I have included a can of cream style corn. The can looks to be the same size but now there are only 14.75 ounces. But in the past the container held 16 ounces. So , it is important to record both price and quantity. Finally, you may want to note the merchant providing the good or service.

Then save your list to an Xcel sheet or if writing out long-hand, place somewhere safe so it won’t get tossed. AND a place easily remembered! Because at the end of April, July, and October we re-visit the Inflation Check Challenge. Of course, those so inclined can record monthly changes as well.

2021 Inflation Monitoring

2021 will provide mixed signals about inflation. But, year over year comparisons will be especially troublesome due to the Covid-19 shut downs in 2020. Even though the United States did not have a complete lockdown similar to the Wuhan Province in the People’s Republic of China, productivity plummeted in March through June of 2020. So did spending. Perhaps a comparison to that same time period in 2019 would provide more insight.

Other concerns regarding inflation come from pent-up demand. This will be an uneven demand as some states are more open for business than others. However, even individuals in the “open” states have had travel curbed. So, late in 2021 I think we will see more than just a return to normal. However, I do not know how long excess spending will continue. If at all.

Families have not only pushed back memorial services, but many young couples have delayed their nuptials. Furthermore, our mobile society has been hampered by the uneven ability to travel to locales such as Hawaii or New Mexico. I think we will have a major boom next fall. So, how long will this return to consumption last?

In economics, a low level of inflation is preferable to disinflation or worse, deflation. But stagflation such as experienced by America in the 1970’s and hyperinflation, which both Venezuela and the South Sudan have been battling are two concerns. Thus a need for monitoring inflation on an individual as well as a national basis.

Inflation Check Challenge List

I have fifteen items on my list including one fast food treat. If I snagged a sale price, I also list the regular price. Your list will be different than mine. The list should be a reflection of normal purchases that are quickly consumed. Therefore, don't include durable goods such as a new car or dishwasher.

Item

Planet Oat Extra Creamy Original Oat Milk

Small Bag Signature Select Sugar

Signature Select Cream Style Corn

Fleischmann’s Active Dry Yeast

Bananas

Kraft Real Mayo

Meow Mix

Morton Salt

Crest Pro-Health Toothpaste

Align Probiotics

Tide Botanical Rain Detergent

Kerr Regular Mouth Canning Lids

3M Ad. Allergy Furnace Filter

Dunkin Donut-Boston Cream

Regular Unleaded Gas

Amount

52 Oz.

4 Lbs.

14.75 Oz.

4 Oz.

1 Lb.

30 Oz.

6.3 Lbs.

26 Oz.

4.6 Oz.

28 Caps.

92 Oz.

12

1

Single

1 Gal.

Purchase Price

$ 3.49

 2.99

 0.69

 6.99

 0.59

 3.79

 7.78

 0.94

 4.99

26.58

11.97

 3.18

15.88

 0.99

$ 2.36

Regular Price

$ 3.99

 

 

 

 

  4.99

 

  1.19

  5.99

 

 

 

 

 

 

 

Inflation Check Challenge-Share your Basket

For those that participated in a previous Econogal Challenge, I hope you will take this on as well. This is the basket of goods I will keep track of during 2021. The future is impossible to predict. But we can record the present. What is in your basket?