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Episode 147: Inflating the Economy

The dangers of inflation with Mak & G

SHOW NOTES

This episode, Mak & G look at inflation, what it is, the problems it can cause and how we can control it

Inflation is the highest it’s been in almost 40 years, but what does this really mean?

This episode, Mak & G look at what inflation is, the dangers of high inflation, and what happens when money loses its value…

“Volatility is how much prices change and how much”Mak

“There’s only one reason to buy an investment, to make money. But there are millions of reasons to sell.”Mak & G

“If you believe inflation is on the way it’s good to have precious metals, gold, silver, and real estate in your portfolio as investments.”G

Time Stamps:
00:19 – What volatility is and the big swings we’ve seen in stock prices recently.
01:00 – The huge amount of inflation we’ve had recently.
01:18 – How inflation affects companies and the stock market.
01:42 – What inflation is and why it can cause issues.
02:18 – What hyperinflation is and the huge problems it creates.
04:00 – The Hungarian Hyperinflation of 1946.
04:37 – How we keep inflation under control.
04:49 – What happens when money loses its value.
05:13 – Things that are valuable to trade.

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TRANSCRIPT

GRANT: Welcome back to Money with Mak & G. Don’t forget to LIKE, SUBSCRIBE and COMMENT. It looks like 2022 is starting off as an interesting year.

MAK: I can’t argue with that. If we were doing Mak and the Markets, I’d let you know we’ve seen some pretty big swings in the price of stocks in the markets over the last week or so.

GRANT: We all know what that means.

           GRANT/MAK: Volatility

MAK: You got that right. Volatility is how much prices change and how fast. If markets are volatile, it gets a bit scary. Prices jump up and can fall quickly.

GRANT: Yep. Because if you need to sell your investments, you’re not sure what you’re going to get if the price is bouncing all over the place. And that’s RISK.

MAK: There’s only one reason to buy an investment:

           GRANT/MAK: To Make Money

GRANT: But there are millions of reasons to sell

           MAK: Buy a car

           GRANT: Pay for college

           MAK: Retirement

           GRANT: Emergency

           MAK: Have some cabbage in your pocket

           GRANT: Buy video games!

MAK: And, last week we saw some news that affects the markets. That’s when prices for products go up. It’s called:

           GRANT/MAK: Inflation!

GRANT: Yep, we heard that prices over the last year went up almost 7%, which was the most in almost 40 years. And, when inflation goes up, it usually affects the stock market.

MAK: Higher inflation usually means interest rates rise, which makes it harder for companies to make money. The money they borrower costs more. “Growth” companies, which are expected to grow faster in the future usually don’t do well.

GRANT: If inflation hits, most of the earnings for growth companies are in the future which will are now worth LESS. We’re getting ahead of ourselves. What is inflation and why does it cause issues.

MAK: First off, inflation can cause problems for lots of people. If prices go up by 10% and your pay goes up by 6%, what happens?

GRANT: You have more money but can’t buy as much as before. That’s called a loss of:

           GRANT/MAK: Purchasing Power

MAK: Ok, so let’s say inflation is up 10%, during the year, and you get an increase in your salary at the END of the year. You were buying 10 eggs for the family early in the year.

GRANT: Now, you really can only buy 9 eggs. Ouch. Does that mean that Mak gets one less egg or Oreo doesn’t get any? I know dad says he has to work because we both like to eat.

MAK: That means every day we buy food. Inflation can mess things up. Remember dad’s story about hyperinflation in South America when he was auditing down there?

GRANT: I do. But, shouldn’t we explain Hyperinflation?

MAK: Good point. First, the prefix “HYPER” means

           GRANT: High

           MAK: Excessive

           GRANT: Above normal

GRANT: So I can use the word “HyperActive” in a sentence. Makenna is HYPERACTIVE after drinking two cups of Starbucks coffee.

MAK: Or….When Grant doesn’t get enough sleep, he’s “HyperSensitive”.I think that one works.

GRANT: Ok, ok. I do get a bit grumpy and touchy, just like dad. But, do you remember Elon Musk’s HyperLoop, which is supposed to carry people and freight Excessively Fast?

MAK: That does sound cool. It’s like a big vacuum-sealed tube with very low air pressure that can carry a pod full of stuff like people or products without any air resistance or friction.

GRANT: I love when you do research! Isn’t like when we did iFly. It was sky diving on the ground, with huge fans and you got to float up and down, just on the air?

MAK: Yep, that was cool, but those fans were crazy powerful. Ok, back to hyperinflation.

GRANT: There’s one huge issue for people with hyperinflation. Your salary can’t keep pace. When dad was in South America, prices were rising so fast, people got paid twice a WEEK.

MAK: Crazy. Not once every TWO weeks, but 2 times EACH week. They’d get a couple of extra hours for lunch when paid to spend it before prices rose again. If not, 10 eggs would be:

           GRANT/MAK: 9 eggs

GRANT: To make things easy for their employees, they’d actually bring in an armored truck and pay them in cash so they didn’t have to go to the bank and wait in a long line when prices could rise.

MAK: At the point prices keep going up and wages don’t keep up, people can’t afford to buy food, medicine, clothes, gas, heat for their home, and other stuff.

GRANT: I did some research. Hungary had the worse hyperinflation in history. It was July 1946. Inflation went up….Wait for it….13.6 QUADRILLION percent in ONE MONTH. The means prices doubled almost every 15 hours

MAK: Holy cow. No way your salary could keep up. I saw that many people go hungry when that happens. People get really angry since they can’t feed, clothe or take care of their family.

GRANT: Some will break into stores, and steal what they need, and sometimes they’ll take more. That’s called looting. Or people buy everything they can and try to store it. That’s hoarding.

MAK: So, it’s probably better to keep inflation under control if possible. The government tries to help, that’s where the Federal Reserve comes in. They try to slow things down.

GRANT: But, what if regular people can’t are going hungry and can’t pay for stuff. What happens?

MAK: Well, this is where people start to TRADE. For instance, you might trade a good pair of shoes for food. Or something worth more, like your Switch video game system for eggs cheese, bacon, cereal, and milk

GRANT: NOOOOOO!!!

MAK: Would you rather eat or play games.. WAIT.. Stupid question. I know your answer to that.

GRANT: Don’t make me choose sis, don’t make me choose.

MAK: I think we have to talk about things that are valuable to trade. These are things that keep up with inflation. They are usually considered hard assets or real assets like:

           GRANT: A Car

           MAK: Gold, Silver and precious metals

           GRANT: Real Estate, like a house, building or land

GRANT: If you believe inflation is on the way, it’s good to have precious metals, gold, silver, and real estate in your portfolio as investments.

MAK: You got that right. Inflation can be tricky, so I’m glad dad is taking care of it for us.

GRANT: Time to say goodbye. We’ll see you next week for more…..

GRANT/MAK: Money with Mak & G. Bye!!

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