Solutions to the Dilemma of Rising Prices

The ongoing debate over whether the recent surge in prices will be ‘transitory’ or ‘lasting’ has quieted, as price-hikes persist with no end in sight. The cost of living in America is presently increasing at over 8% annually, based on the U.S. government’s own 1990-based formula.¹ Meanwhile, Trish Regan, of American Consequences, reports inflation-adjusted wages are down 1.2% in the same period.² This divergent trend won’t have to last long to pinch a large swath of middle class Americans with little or no savings. What caused the sudden inflationary surge, what will alleviate it, and what solutions can help working Americans survive it?

While an arbitrary increase in the money supply is the primary impetus for rising prices, there are other catalysts. Supply chain disruptions caused by the Covid19 lockdown and sudden economic re-opening is causing consumers to pay more and wait longer for virtually all imported goods. Loaded container ships sit idle outside major ports due to vaccine mandate regulations and a shortage of workers, both issues affecting prices. A shortage of container ships causes further delay, and many return to China empty or slightly loaded, the natural result of America’s exported manufacturing industry. It’s notable the USA/China trade imbalance, roused by the Trump Trade War, is inspiring China to seek new trading partners. Dependence on a less interested supplier is bad enough, but China also controls the global supply chain for raw materials, from which everything is made, and commodity prices are rising noticeably.

A return to free market-based interest rates would expediently correct the rising price problem, as Paul Volker demonstrated, but with the U.S. government, numerous municipalities, and 25% of all corporations in the U.S. burdened by an excessive debt load, don’t count on the Fed allowing it. Setting a limit on the creation of new currency units that is consistent with economic growth would kill the life-blood of rising prices, but due to the fact it would set interest rates ablaze, we must also rule it out. Absent the moral courage to enact these solutions, price increases are likely here to stay, which means we must find our own solutions.

These are some ways to fight price increases:

• Maximize positive cash flow by running a tight family budget, then save & invest more to pay for tomorrow’s higher prices

• Consider The Alpha Strategy for all purchases (contact the office for a free e-copy)

• Don’t relinquish earned income without serious consideration

• Avoid big positions in low or non-income producing investments, like cash and speculative growth stocks

• Focus on income and dividend investments, especially those able to raise prices with inflation, and are capital efficient

• Own some inflation hedges (REIT’s, MLP’s, commodities, gold)

• Consider utilizing the Charter Economy

Think about it. Shaun

“A nickel ain’t worth a dime anymore” ~Yogi Berra

“You shall do no wrong in judgment, in measures of length or weight or quantity.” Leviticus 19:35

1 John Williams’ Shadow Government Statistics, Inflation 1990-Based, 10/14/2021

http://www.shadowstats.com/alternate_data/inflation-charts

2 American Consequences, “The Incredible Shrinking Dollar”, 10/13/2021

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss.

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