Part of the reason the world is in such a mess is that the politically attractive “solution” to a supply shock– that is, checks in the mail — exacerbates rather than cures the problem. The typical reaction of policymakers is to stimulate a stalled economy by pumping up aggregate demand. But that knee-jerk answer ignores the underlying cause of the problem. When the output potential of an economy is temporarily capped, those stimulus programs are highly inflationary. The solution to a supply shock is to incentivize a return of the supply-side, the opposite of what the current administration is doing: asking energy companies to produce more while simultaneously promising to put them out of business.
Many in America are waking up to the dangers of globalization and over-reliance on authoritarian countries. The challenges we face today didn’t start with Covid. I have cautioned publicly since 2005 about how US corporations accelerated their outsourcing to China to maintain margins when faced with little pricing power (because we were flooded with cheap imports). As job quality declined and real wages declined for many, they felt something had gone very wrong. Predictably, they have embraced more populist politicians on both the left and right, risking greater instability as tribalism takes root.
We have learned since the onset of the financial crisis that policy makers will do just about everything to keep the system going, notably also changing the rules of the game along the way. How do you incorporate that into your investment strategy, your life choices?
I will be speaking about this at FreedomFest, “the world’s largest gathering of free minds,” July 13-16 at the Mirage Las Vegas Hotel. In my session on Thursday, July 14 at 2:10pm PT, I discuss the dynamics at play to help empower you to cope with what’s ahead. I’ll share with you lessons I’ve learned since publishing my 2009 book on how to achieve financial security in a volatile world of debt and consumption. Part of surviving what’s ahead is investing in yourself: When you don’t know what curve ball from policy makers is coming your way, investing both in your income generation potential (through education) and your health can help you become more resilient.
See you on July 14 at 2:10pm PT.
Axel Merk
This blog was prepared by Merk Investments LLC (“Merk Investments”), and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Merk Investments makes no representation regarding the advisability of investing in the products herein. The information contained herein reflects Merk Investments’ current views and opinions with respect to, among other things, future events and financial performance. Charts, graphs, and tables are provided for illustrative purposes only. Any forward-looking statements contained herein are based on current estimates and expectations. Opinions and forward-looking statements expressed are subject to change without notice. This information does not constitute investment advice and is not intended as an endorsement of any specific investment. The information contained herein is general in nature and is provided solely for educational and informational purposes. Some believe predicting recessions is either impossible or very difficult. The information provided does not constitute legal, financial or tax advice. You should obtain advice specific to your circumstances from your own legal, financial and tax advisors. Past performance is no guarantee of future results.
