Are You Being Left Behind in the Wealth Erosion Race?
News
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Posted 28/06/2023
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In a world where the government keeps spending with seemingly no concern for the damage it inflicts on the 'little guy', we are witnessing the makings of a potentially devastating scenario. Stagflation looms, and the echoes of an Argentina-style hyperinflation ring louder each day. Yet, there is a resolute group of prudent investors turning towards gold, their safe haven in this tempestuous financial climate.
Why is this happening, you may wonder? The answer is distressingly simple. Despite the monumental drop in money supply, the impending economic slump is being masked by an increasingly intrusive government presence in the economy. This sly nationalisation is leaving families and small businesses burdened with the repercussions of monetary contractions and rising interest rates, while larger corporations and the government itself remain virtually untouched.
The economic indicators may not flag a recession just yet, but the private sector is already feeling its chill. Declines in real disposable income, actual wages, and small to medium enterprises' margins are painfully real, concealed only by the government's excess spending. You might be tempted to think this a silver lining, the government's expenditure funnelled into citizens' pockets through social spending. Yet, this is a short-sighted perspective. There is no free lunch. Every dollar the government doles out today will inevitably be recouped from the private sector, in the form of increased taxes and diminished real wages in the future.
So, what are we left with? A dwindling global money supply and a private sector in recession, while government debt continues to bloat. For now, rising borrowing costs may not matter to governments, as the bill is footed by you, the taxpayer. This imbalance drains liquidity from the private sector, causing a ripple effect that will continue over an extended period.
With central banks hiking rates, the burden falls heavily on families and SMEs. Meanwhile, large corporations remain relatively unaffected, having access to credit and often sitting on a nest egg of cash reserves accumulated over years of cautious financial management.
Inflation, particularly core CPI, does not react quickly to rate hikes because the largest economic actor - the government - continues to act as if everything is under control. Even with external factors like freight or energy witnessing price contraction, overall prices do not reflect this. The reason? Governments continue to consume new units of currency, further exacerbating the economic imbalance.
This is where we find ourselves today. In the midst of a situation where money supply slumps and inflation should be half of what it currently is. Yet, the reality is quite different. Governments continue to consume newly minted currency units, masking the harsh reality faced by the private sector. The end result is a private-only recession.
Drawing parallels from Argentina, currently grappling with a staggering 108% inflation, it becomes evident that when government spending is unhindered by monetary tightening, it sparks a potentially uncontrollable downward spiral.
To add insult to injury, the ongoing money supply slump and interest rate hike path are wreaking havoc on the economy's backbone – families and small businesses. The attempts to normalize monetary policy without correspondingly curtailing government spending and deficits is a recipe for stagnation.
While the governments of the world show no interest in solving these underlying issues, prudent individuals are not sitting idle. They are taking matters into their own hands and buying gold, recognising its value as a hedge in times of uncertainty.
It's time for you to consider the same. Gold is a timeless safeguard against the follies of fiscal irresponsibility, offering you a lifeline in these turbulent economic waters.