The central banks of the world are guiding us to a perfect crash landing. Interest rates have remained elevated in an attempt to curb the inflation brought on by printing excessively during 2020 and 2021. This strategy has actually worked by reducing US inflation from over 9% at the beginning of the year to around 3.5% now, according to governmyth numbers anyway. However, that does not mean prices are going ‘back down’ as our president would wish. A reduction in inflation does not bring prices down, it makes prices increase slower. Reducing prices is called “deflation” and is quite different.

What does all this have to do with a recession? Well, rates determine how much interest to charge on borrowed money such as car loans, mortgages, business loans, etc. With the one, two punch of inflation hurting consumers and higher interest rates hurting businesses people are either being put out of work or not receiving raises and bonuses to make the budget balance.

Consumers must now prioritize what is important such as food, shelter, etc and reduce spending on unnecessary items such as Netflix, Spotify, etc. Remember that this is all caused by the excess money printing done in 2020 and 2021.

The only way to hold what wealth you do have is through a limited supply asset such as gold, silver, etc. These have a limited quantity and a well-known track record of retaining their value. These assets don’t go up in value so much as they hold their value as the fiat currency they are compared to looses it’s value. Put in simpler terms, an ounce of silver today is worth the exact same as an ounce of silver in 1913 at the inception of the fed. However, the dollar has lost 99% of its value over that same timeframe.

Inflation is a hidden tax against every single person who holds a fiat currency as it is guaranteed to be worth less tomorrow than it is today.

  • sugar_in_your_tea@sh.itjust.worksEnglish
    13·
    11 months ago

    Analysts have predicted 20 of the last three recessions.

    You have some correct statements, but your conclusions aren’t backed by evidence. Here are the correct statements:

    • inflation has dropped, which means slower price increases for the average person
    • higher interest rates mean higher borrowing costs, which means slower growth in the business sector
    • gold and silver have historically held their value, on average

    But then you get into incorrect statements and speculation, such as:

    only way to hold wealth during a recession is through precious metals

    Here’s gold prices vs inflation historically, with recessions included. I don’t see much correlation here, and there are very long trends where gold lost value. So I see nothing in the data to back up holding gold.

    Here’s a similar chart for the S&P 500. As you’ll notice, it doesn’t have as long of downward trends, and the total growth is much higher (2-3x vs gold).

    So to me, gold looks just as volatile (maybe more?) and has worse returns relative to inflation vs stocks.

    The best way to preserve and grow wealth is through a buy and hold strategy with a properly diversified portfolio. I don’t think gold is important in a portfolio and instead recommend stocks and bonds, where bonds reduce volatility and stocks produce growth relative to inflation.

    Inflation is a hidden tax

    Sort of, but it’s a lot more complicated than that. Inflation encourages consumer spending, since money doesn’t hold as much value tomorrow as it goes today. That spending pushes up profits, which does two things:

    • increase investment in the business - more jobs, bonuses, raises etc
    • increase share value of the business - enriches share holders

    You want to benefit from both, so you should be a share holder as easily as you can (i.e. invest in a diversified stock portfolio) and hold an in-demand job so you get those raises and bonuses (i.e. increase your skills, apply for new positions as they’re available, etc).

    The important thing to note is that recessions have historically been temporary, most of the time. The main exceptions are the Great Depression (perhaps could’ve been a simple recession if Hoover didn’t overreact) and stagflation in the 80s (supply shock, similar to COVID issues; also big change in US monetary policy), but in general they last 1-3 years and are usually followed by a bull market as the market recovers.

    So this leads me to two points:

    I don’t know if a recession is coming, but I do know it’ll change nothing about my investing strategy, other than perhaps how much I can invest.