We are entering an inflationary economy, and this is new waters for many business owners. Today’s episode has six ideas to thrive in a world of unusually high prices and also brings perspective to the inflation issues we are facing. It’s important to be aware of what’s going on to make smart decisions for you and your company.
Scott presents a picture of our business climate that includes inflation, the general economic policy of the U.S. called Modern Monetary Theory, and President Biden’s 3-point approach to dealing with inflation. He will close out with six ideas on how business owners can thrive in an inflationary economy.
#Arise2LIve #inflation #businessowners #strategy
Inflation – insights and perspectives
At its simplistic definition, inflation means losing buying power. Your money just doesn’t go as far anymore.
The latest numbers that came from the U.S. Federal government says that the consumer price index increased 8.6% year-over-year from last year and sped up to 1% just in the month of May 2022. From my research, the highest inflation rate in America was in 1980 at 13%. So there’s plenty of room to increase.
Usually business owners give their employees raises once a year or so. It just seems the custom in American is not to give employees raises very often. So when inflation hits, prices go up but wages don’t. It’s a problem with cash-flow.
Modern Monetary Theory (MMT)
MMT is controversial, but seems to have won the economic policy battle.
The basic premise of MMT goes like this: because the United States has a monopoly on the U.S. dollar and can print more money at will, then there is great flexibility for the government to spend and borrow. Tax revenues do not constrain the government to operate or to engage in its goals. As long as the economy has capacity in material resources and people resources, the government can borrow or print more money than it spends, the fancy word for this is deficits, with little to no consequences. The extra money that the government pumps into the economy goes to increase productivity and national output.
The theory says the government can spend and print whatever it wants to up to the point where there’s no more resource capacity in the economy. Past that point, those actions create inflation.
President Biden’s 3-point Approach
- Let the Federal Reserve people do their thing to fight inflation.
- Reduce some costs and build more capacity.
- Take proactive steps to cut the fiscal deficit.
For business owners, expect higher interest rates for your company and your customers that will slow down sales. Expect higher taxes and make sure your books are audit resistant. But remember MMT? To fix inflation is to lower government spending and increase economic capacity. Increasing capacity is a government priority and an opportunity for us business owners.
Six Ideas to Thrive in an Inflationary Economy
- Cash-flow is king.
- Pass on cost increases to the consumer.
- Create must-have products.
- Get access to fixed interest rate financing.
- Give frequent raises to your employees.
- Buy physical assets to sell later.
CPI numbers from the US Bureau of Labor Statics https://www.bls.gov/cpi/
Congress Budget Office Federal Deficit numbers https://www.cbo.gov/publication/57170/
MMT description from Investopedia
MMT article from NY Times
WSJ Commentary Joe Biden: My Plan for Fighting Inflation
MMT & Biden’s Commentry from Stephinie Kelton’s post
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