Lets’ talk Inflation.
Regardless of whether we want to admit it or not, things have been a little different in the past 6 months.
That being said, I am not an economist nor working in finance, however, I will talk about something related to inflation, recession and how you can respond to it in the way you THINK and ACT.
Before we dig deep into this awesome topic, I know there may be some people who would rather sing Kumbaya all day, holding hands and chanting mantras. How will the world change for the better just by holding hands and singing happy songs?
They tried in the 60s and that ended with Watergate.
It will not.
What is inflation?
According to the mighty internet (more precisely Investopedia.com), inflation is a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy.
What is recession?
A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters – basically declining economic activity.
Let’s go deeper into history and list 5 of the World’s Most Devastating Financial Crises:
• The British Credit Crisis of 1772
• The Great Depression of 1929–39
• The OPEC Oil Price Shock of 1973 (Jackal, Carlos Ramirez Sanchez – 1975, kidnapping)
• The Asian Financial Crisis of 1997
• The Global Financial Crisis of 2007–08
I do remember inflation in the 1980s – allegedly because of the Iran revolution but I didn’t know better, I was just a teenager with big dreams, like owning a pair of Nike sneakers.
But what I do remember was that petrol was sold to car owners like, if your rego ends with an odd number on an odd date, you can put petrol in your car, as well as many winter nights where the electricity was shut down around 4pm. I was doing homework under candlelight as if I was Galileo and Copernicus. I would finish my homework, no excuses.
I also remember clearly now how I used to stand in line in front of the local store from 8 am till 3 pm, then my father from 3 pm till 3 am, then my mother could follow in the morning buying one litre of cooking oil, 200 grams of coffee beans, 1 kilo of sugar and, if I was lucky, a mandarin or two.
I needed to share with my younger brother which I didn’t like, not one bit.
Inflation was a topic for adults, and in communism people didn’t talk publicly but with a chosen few. You never knew who was an informant.
The most important thing is that in communism there were no financial planners or mortgage specialists.
But what we did have was TV (the truth is, there was only 2 channels, in black and white, no colour).
And on TV was declarations of how communism is great, and our leadership is doing everything to manage the inflation as fast as possible so the working class can go back to the factories happy. This was the news.
News like the US president Ronald Reagan and his speech about “Star Wars”. Funny, Ronald Reagan never watched Star Wars according to his memoirs.
I apologise I can hear it, the Imperial March.
The news was that the US developed Star Wars which suddenly created money. Money for who?
The Military. No need to talk about that in this episode.
What we have seen in the past 2 years are statements such as, “it is cheap money, buy more properties”; and “money was printed, galore, I mean galore, like there is no tomorrow”.
We have seen the phenomena “WFH”. Now we can see the results from those advisors, those financial planners.
So, let’s dig into what you can do and what you should not do. This advice is about your thinking.
There is famous quote:
The Latin cogito, ergo sum, usually translated into English as "I think, therefore I am", is the "first principle" of René Descartes's philosophy.
In a nutshell:
We humans operate on a daily basis and future wishful thinking.
Daily basis we can describe as “tactical” and future thinking as “strategic”.
For individuals looking to utilise tactical, operational, or strategic thinking, I would like you to visualise this as a 3-dimensional operation between:
3. Force: that is Money or Resources
In the simplest terms, inflation and recession create uncertainty, obstacles, fear, and anxiety. No questions asked.
So, when someone tells you to think strategically, usually they want you to think about the future.
Stop there right now.
You need to think about now, today, not what will be in 12 months’ time.
You should apply a tactical approach, which means you will need to utilise less time, space, and resources to overcome elements of inflation or recession.
What does that mean?
For starters, source cheaper food over the next 7 days. Think how you can reduce cost for your household for the next 30 days. That is tactical thinking.
If you chose strategic thinking, looking beyond the horizon. You will need to spend more time, space, and resources to fight the uncertainty of inflation or recession and plan for the next 12 months’ time. It is impossible due to the everyday changing situation.
Many situations have no answers or crystal ball, so act now for tomorrow not on wishful thinking.
And at the end, I must say, I am always surprised about how the last people who learn that inflation is happening, are the taxpayers.
Take the tactical approach, not strategic.
Strategies can be played well after a crisis is gone and brighter financial days come.