One of the biggest trends that I don’t think anyone can deny, especially over the long-term, is simply inflation. There’s no doubt that people will debate about why inflation is really happening and who is responsible. Some think there are definite evil characters behind inflation. I strongly believe that the Federal Reserve is behind why Americans across the board are experiencing ever-increasing inflation pains as time progresses.
I remember only about 10 years ago, my favorite pastrami joint sold amazing pastrami loaded sandwiches for about four dollars, now they are double in price and worse; sometimes I even feel cheated on the amount of pastrami!!!
It was not that long ago when five dollars actually bought you a decent sized lunch; the cheaper fast food chains at the same time charged only three or four dollars. Small food price change acknowledgements may just be a little weekly annoyance but it is a reminder that the value of my dollar is going down. Now what about other necessary living expenses such as housing?
Housing in America’s larger metropolitan cities such as Los Angeles, New York, etc., experience price inflation that flirts around a staggering 7% a year. People wonder why their parents were able to afford modest middle to upper class homes on average salaries just two or three decades ago…not possible today.
This becomes a bit more clear when you compare what is happening in wages. According to the Social Security Office, wages have only increased about 4.2% historically per year. When you compare the 4.2% in wage increases to the 7% in housing price inflation, there is a 40% lag in income that we are dealing with across the board that is not accommodating the out of control price appreciation in the housing sector.
- The standard of living in America is falling faster than the ability for employers across the board to be to keep up with equivalent wage increases.
- The government is artificially propping up the housing market beyond the affordability of the buying public through low interest rates and backing nonsensical loans.
- The purchasing power of the dollar is falling faster than even innovation; people’s ability in general to make money.
- There are opportunities in real estate for you to actually benefit from the Fed and government’s mismanagement of our resources.
Now when I sat down to write this, I wasn’t intending it to go into a pure “pro real estate” push.
Realistically, liquor stores that sell candy bars will be able to outpace or at least keep up with inflation better than someone on a fixed income. In fact, owning a business in general will be a way for many to maintain their purchasing power because as the dollar falls their prices (and thus nominal income) will increase.
Lastly, speaking of businesses, stocks are historically known to outpace income. Depending on what financial adviser you listen to, some will say you should get 12% a year in the S&P on the high end and down closer to 7% a year on the low end. Again, these numbers are drastically higher than wage inflation which should alarm people who aren’t doing something to protect their purchasing power.
The meaning of this article’s title, “The Fed has “Got Your Back” is that you can invest in hard assets knowing full well that the Fed is going to do everything in their power to continue pro money printing policies. You can read this article and feel depressed thinking about how your savings are being destroyed, or you can be encouraged to be a proactive investor. You should have the confidence to know that the Fed wind is at your back pumping the system and overtime, this will inflate the value of assets you own making you very wealthy.
If anything, you could open up a pastrami sandwich deli and know that I will probably be your number one customer just as long as you don’t get skimpy on the meat!
Just keep in mind, “the Fed has Got Your Back,” don’t get squeezed by the trend…
Chief Editor at CrushTheStreet.com