Welcome to the financial situation in 2023. I hope to give you the ‘Ahaaa’ moment about the current state of economy by the end of this article.
Here’s a snip from my Walmart shopping history: 60 count eggs I bought in July 2022 costed $10.23 and I payed $25 for them in January 2023.
I could end this article right here but lets start over.
Inflation is a key economic concept that refers to the increase in prices of goods and services over time. It is measured by the percentage change in the price level of goods and services over a specific period of time, typically a year.
Sounds boring? Okay here’s an even more simplified explanation:
“Inflation is when there’s more money in the economy than stuff to spend it on.”
Here’s a scenario of how inflation converts into recession: Imagine a small town that only has one store selling everything. One day, the Government shows up -> Encourages everyone to borrow money at very low interest rates and even gives free money out in several ways(think stimulus money/excessive unemployment money in the USA or the loan scheme called the CBILS in the UK) -> Everyone borrows more than they need -> This causes increased sales; in other words excessive spending by customer(remember the Peloton phase during the pandemic) -> supply suddenly decreases -> PRICES INCREASE and the store owner expands his business based on the low interest rate -> but the Government runs out of money eventually -> interest rates increase -> Debt increases -> store owner lays off employees -> lowers prices at a drastic rate making the business now almost unprofitable
Here’s short version of the flow of inflation -> Low interest rates lead to more spending which leads to supply shortages which lead to high prices aka Inflation
The above can be applied to practically a majority of industries that saw unbelievable growth 📈 during the pandemic:
- Fintech companies(Example: PayPal)
- Retail(Amazon and Ebay)
- Streaming services(Netflix and Hulu)
Just like the small town example earlier, they all saw a surge in sales(2020), which slowed down in about two years, they laid employees off and here we are. Here’s layoff data from 2022
Here’s where I think the Governments messed up in retrospect:
- Stimulus to high income individuals(even those that didn’t lose jobs)
- Child Tax Credit to those that were unaffected financially
- Forgivable Loans at 0% even to those that didn’t need them forgiven
I’m gearing up for a rough recessionary period starting mid 2023. Feel free to share your thoughts on how 2023 and 2024 would shape up.
Disclaimer: Im not an economist or a financial expert but this article is solely based on a combination of personal observations and data I collected. You could also call it a rant 😉.
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