Why The Economy Is Actually Far Worse Than You're Being Told By The So-Called "Experts"

A lot of people have been surprised at the direction our economy seems to have suddenly taken, but they shouldn’t be. 

The signs have been right in front of us for anyone to see, but unfortunately, many Americans today lack the financial literacy to understand the data. That’s why I’ve been sounding the alarm for several years now.

I think it’s safe to say most people have some idea how bad our economy is now because it’s become so obvious, but it’s still far worse than most realize. It’s important for people to understand the reality so they can adapt accordingly to survive, and hopefully thrive through the economic challenges we all will face over the next few years. 

Inflation Will Remain A Problem For Years To Come

Inflation absolutely skyrocketed in 2021, shortly after the pandemic spending spree and unfortunately, our government seems to be committed to more of the same, so inflation isn’t going anywhere anytime soon, and it’s probably going to get a lot worse before it gets better.

This has driven the costs of everything through the roof. In fact, Charles Payne, host of Making Money, on Fox Business, recently reported that the average American family has seen an increase in cost of over $7,000 dollars this year compared to last year.

Once upon a time, our currency was backed by physical gold (that’s where the phrase, “The Gold Standard” came from) and this meant there was a finite amount of currency that could be in circulation at any given time. Then, in 1971, the U.S. abandoned the gold standard in 1971 and essentially said that our money is worth whatever we say it’s worth. The problem here is this gives the government the ability to indiscriminately print money.

To someone who isn’t financially literate, this might seem awesome. After all, what’s wrong with free money? Just print millions for everyone and we’ll all be rich, right?

Well, no. That only works in fairy tales.

Every time our government dumps new money into our economy, it devalues our currency. 

If you’re like most Americans who don't work in the financial world and you keep hearing about inflation but you’re not really sure how it all works, it’s pretty simple. Think about it like this — let’s say, for the sake of easy numbers, that there’s 1 million dollars in circulation. If the government were to print another million dollars and dump it into the economy, the value of our currency would be cut in half. 

Now before you start thinking, “There’s no way they would do that, David! That’s crazy!” as most people do when they first learn about this, let’s put it in perspective. In 2021, the US government dumped 4.32 trillion dollars into our economy. And how much currency was in circulation before that? In January 2021, there were a total of 2.092 trillion dollars in circulation. The Fed’s response to COVID was to simply increase money supply by 40% and since doing that, American citizens have lost another 20% of our purchasing power. That means that what would have cost you $100 in 2020 will now cost you $119.24 today in 2023.

To put this all in perspective, the U.S. dollar has lost 87% of its purchasing power since abandoning the gold standard 1971. It’s also worth noting that in the two years leading up to December 2021, the US Federal Reserve had printed 80% of all US dollars in existence. This, essentially, unlimited printing of the US dollar is exactly what caused real estate and certain other assets to skyrocket in price, driving inflation up in the process.

The sad reality is that our policy makers aren’t interested in actually fixing the problem, and most Americans lack the financial literacy to even see it, so our government just keeps applying bandaids in an attempt to hide the real problem - runaway spending.

Debt Is At Unprecedented Levels

Personal, corporate, and government debt are all at historic levels today, and this is wreaking havoc on our economy. Corporate bankruptcies are surging, auto loan defaults are on the rise, and mortgage defaults have more than doubled, as have credit card delinquencies.

Let’s get the uncomfortable truth out of the way first — our government debt is the direct result of decades of financially irresponsible policy makers, but we as citizens also bear some of the responsibility for not demanding better from them.

The cause for corporate debt is multifaceted. Part of the problem is, ironically, the fact that low interest financing has been available for so long that many companies have developed an overreliance on it. The other part is that the economy has been really good for a really long time, so many companies have gotten sloppy with their finances and operations thinking the gravy train would keep running forever.

Personal debt is another animal altogether. I’ll be the first to tell you that most Americans are not financially literate, which plays a big role in consumer debt levels. Unfortunately, this fact, combined with the rapidly rising cost of living due to inflation is hammering consumers from both sides.

Now I’m not one of those silly people who claim that “debt is dumb,” because when used properly, it can provide tremendous leverage, but this is a proverbial perfect storm of unsustainable debt. We’ve all seen the results of this at the individual level first hand, and it never ends well. The spenders who never can seem to reign it in, and keep maxing out their credit cards, taking out personal, auto, and home loans, and taking weekly trips to the payday loan companies. Eventually, it catches up to them and they end up unable to afford the debt payments because the interest has compounded to a level that exceeds their income. 

This isn’t just happening to individuals though. It’s also happening with corporations. The bigger problem is that it’s also happening with our government, and here, it’s even worse than it is with individuals. 

I think we all know how this plays out for individuals — they go into default, their credit is destroyed, and they lose access to credit for years to come. For corporations, it’s a little bit different because it can result in the company going out of business. This hurts everyone involved with the company, including employees, investors, vendors, landlords, and more, gets hurt financially. And when it comes to the government, the outcome is even more dire. Look at Venezuela for an example of what happens when a government goes broke.

Consumer Confidence Continues To Plummet

The current state of our economy, combined with the uncertainty of what’s coming, has caused consumer confidence to plummet. Salary has stagnated while costs have skyrocketed, so unsurprisingly, Americans have lost faith in the direction of our economy. 

Factor in some of the other recent changes in the economy, like increased interest rates and more stringent credit requirements, the collapsing commercial real estate market, and talk of cuts to social security, and it’s no surprise that consumer confidence is near all-time lows.

This has a far-reaching ripple effect.

Obviously, declining consumer confidence means Americans become a lot more selective in their spending and they begin cutting anything that isn’t a necessity. That then leads to reduced revenue for companies, which are facing all the same challenges that individuals are, so they’re forced to begin laying employees off. This means those companies are forced to start cutting costs in other areas as well, so other companies suffer, which means they are then forced to lay employees off too. 

It creates a brutal downward spiral that sucks the entire economy down.

The worst part here is that consumer confidence is a lagging indicator because most people lack financial literacy, so they typically don’t see the economic warning signs until months or even years after they occur. It doesn’t help matters that many of the pundits in the media have been trying to paint a rosier picture of the economy than is accurate, often outright lying. So it’s understandable that so many people don’t realize just how bad things really are.

That allows the situation time to get worse. I look at this like a fire in your house. If you react as soon as you see the first signs of smoke, you can usually put the fire out with minimal damage, but if you wait too long to react, your house could be engulfed in flames and suffer catastrophic damage. 

For the last couple of years, that’s the situation we’ve all been in, but unfortunately, most people didn’t see or understand the signs, so few began preparing early. The good news is that more people seem to be more aware because the prices of everything are punching them in the face everyday.

The other scenario we have to be prepared for is that the same way consumer confidence is a lagging indicator as the economy gets worse, it also tends to lag as it rebounds. There are two reasons for this. The first is the same reason it lags going into a down economy — most people don’t know how to read economic data, so they can’t see when things have started to improve. The second reason is that after going through a recession, people tend to be much more cautious, so it takes a while with a good economy before consumer confidence goes back up and spending returns to previous levels.

The takeaway here is twofold. The first is that our government manipulates the currency, the economic data, and the economy. And the second is that this interference has created an artificial sense of stability when that is the farthest from the truth. Hardworking Americans are being misled which will be the cause of greater financial pain in the future unless they become more resolute about personal budgets, the use of debt and maintaining adaptable skillsets for an ever-changing marketplace.