It’s an understatement to say that the last two years have been far from normal. Thinking back to 2019 or early 2020, it’s amazing how much the world has changed in such a short amount of time. But as much as many of us would like to return to those halcyon days, the reality is that we’re likely entering a new normal, and we will have to adjust to it.
This new normal will likely require many of us to change our habits. From eating to spending to investing, the safety and security we used to feel just isn’t there anymore. Rising prices at grocery stores, periodic shortages of consumer goods, and the growing risk of stagflation are coming together to create a perfect storm of uncertainty.
Those who are able to adjust to the new normal will be able to survive and perhaps even thrive. But those who are unable to adjust risk being left behind in an economy that will probably look far different than anyone expected. Here are three aspects of the new normal that we’re going to have to face.
1. Rising Prices
Rising prices are the first and most obvious aspect of the new normal. And there are two causes that we’ll have to deal with.
The first is inflation, the factor that’s most responsible for driving prices up in the short term. It’s certainly possible for inflation to become entrenched, much like it was in the 1970s, so that it could end up having a greater long-term effect than many expect. The other factor is the development of China, which could impact world trade and the flow of consumer goods to the West.
Although the Federal Reserve has pledged to fight inflation, and says that it’s not going to waver, there are already signs of cracks in the armor. Atlanta Fed President Raphael Bostic has already publicly stated that he supports a pause in rate hikes in September so that the Fed can assess the impact its current hikes have had.
In all likelihood the current series of rate hikes, plus the forthcoming balance sheet reduction that begins this month, won’t be able to bring inflation down nearly quickly enough for the Fed’s liking. And pausing rate hikes in September would just give more ammunition to the doves, who are still calling for more monetary easing.
If the Fed departs from the path of tightening and begins to ease monetary policy again in order to combat recession or the threat of recession, it may not be able to get inflation under control. We could therefore see a return to the 1970s, in which rampant inflation drove prices upward for a decade.
Developments in China are slower to materialize, but they’re nonetheless going to have an impact. For too long Western consumers have relied on cheap Chinese goods. From socks to car parts to machine tools, there’s hardly an industry today that isn’t reliant on “Made in China” goods.
But as China develops as a country and grows its middle class consumer base, and as the country’s labor pool becomes older, smaller, and ever more expensive, manufacturers aren’t going to be able to rely on cheap Chinese production. Already the prices of many Chinese-manufactured goods are far higher today than they were a decade ago, and that trend is likely to continue.
So if you thought prices on the food and goods you buy will ever return to “normal,” there’s probably very little chance of that happening.
2. Supply Chains
Supply chains are also at risk of never returning to normal. Many inventory systems around the world relied on just-in-time operation, always operating on the razor’s edge. Any disruption to the supply of goods could result in wide-ranging shortages.
In 2020 we found out just how dangerous the just-in-time system could be, as lockdowns resulted in major disruptions to supply chains that still haven’t abated. Chip shortages are still plaguing numerous industries, and it’s anyone’s guess when things might get back to even a semblance of normalcy.
Add in the effects of the war in Ukraine and the continued lockdowns in China, and you have all the ingredients for a continued and serious disruption of the way business is done. It could be a decade or more before supply chains settle down.
3. Food and Energy
Food and energy prices are the real kick in the pants for most Americans. We can’t survive without food, and we require energy to power our homes and cars.
Food prices have been rising at a consistent pace for the past several months, and it’s not unusual to see prices on certain items 50% higher or more today than they were last year. And there are numerous factors at play here.
On the one hand there’s the rising cost of foodstuffs themselves. Then there’s the rising cost of labor, as companies have to increase wages to get people to work. Then there’s the rising cost of packaging, particularly cans, as the war in Ukraine has upset metals markets. Finally, the rising cost and shortages of diesel to fuel delivery trucks has raised the cost of transporting food to stores.
Energy prices have risen across the board, helped along by the war in Ukraine and its disruption of world oil and natural gas markets. Americans are paying more for gas now than they ever have, and the government actually thinks this is a good thing.
President Biden actually tried to make it sound as though rising gas prices were beneficial, the price to be paid for “an incredible transition” away from fossil fuels. Were you ever asked whether you wanted to transition away from fossil fuels, and pay more money for that privilege? Didn’t think so.
With a government that is hell-bent on pushing green energy, don’t expect to see prices on gasoline, natural gas, and other fossil fuels fall anytime soon, unless it becomes absolutely politically necessary for the government to do so.
What Can You Do?
While we may be at the beginning of the new normal, things are still in transition. Many people are waiting to see what takes place over the next few months or over the next year, as they’re still hoping to see a return to normal. But if things don’t return to normal, and this really is a new normal, then what?
One aspect of the new normal that could be most damaging is the rise in prices, of food, housing, energy, etc. The value of your dollars is being eroded every day, faster than it has been in decades. And if you aren’t able to defend against that, your standard of living will likely decrease as you find yourself unable to afford the things you’re used to having.
One way that many people are trying to protect themselves against this inflation and dollar devolution is by buying gold and silver. Gold and silver have a reputation for maintaining their value during tough economic times.
During the stagflation of the 1970s, both gold and silver made average annualized gains of over 30% over the course of the decade. And while that rate of growth may seem unattainable for gold and silver today, many expect gold and silver to continue growing for the foreseeable future, as high inflation remains a threat and the economy totters on the brink of recession.
If you’re worried about the effects inflation will have on your well-being, could gold and silver be the answer? Call the precious metals experts at Goldco today to learn more about how gold can help you protect and defend your hard-earned wealth.