Navigating Historically High Inflation Combined with Low Interest Rates

Let's discuss what's happening with the cost of goods and how you can navigate historically high inflation with low-interest rates. 

We recently held a Royal Investing Group Mentorship with Ron Galloway, an expert financial researcher with 35 years of experience to answer the inflation question. Galloway has been featured in The New York Times, CNN, CNBC, and The Wall Street Journal. 

Please keep reading to learn more about inflation, how it's measured, and the potential impact on low rates in your real estate investments.

What Is Inflation?

According to expert financial researcher Ron Galloway, inflation is "simply an increase in the money supply." In the past year, nations increased their money supply up to four times, says Galloway, which led to historically high inflation. 

The rate currently reduces your money's value and drives up prices. 

When you shop, do you notice that things cost a little more each time you go back?  

For example, last year your shopping cart cost $300. An identical shopping cart might cost you $320 or more this year. At its most basic, that's inflation.  

Contributing Factors

Galloway explains that the economy is not as strong as it is reported because of:

  • a high unemployment rate
  • supply chain issues caused by high unemployment
  • increase of deposits into checking accounts
  • the significant growth of $1, $20, and $100 bills in circulation
  • historical lows in the movement of money (people are hoarding it) 

Each of these factors contributes to the inflation situation we are experiencing. 

How Is Inflation Measured?

We measure inflation by measuring the cost of many items over a specified period. The Bureau of Economic Analysis and the Bureau of Labor Statistics measures goods and services costs, categorizes the expenses, and creates different price indexes. 

Price Indexes

Price indexes are lists of prices. There are different price indexes; one measures households and their consumption of personal goods and services. Another price index measures commercial companies and their raw materials consumption and needs for machinery. 

Measuring Inflation

To measure inflation, we look at the level of a price index. If the price index level is higher than over a year ago, we know that prices are higher on average, and there is inflation. 

Galloway argues that inflation numbers provided by government statistics agencies do not adequately account for essential goods like food and fuel. Necessary commodities like food and energy cannot negate an increase in prices and other goods that aren't essential, like electronics. 

That means that real inflation for essential goods may be even higher than the reported rate of 7.5%.  

What Is the Impact of Low-Interest Rates on Banks?

The impact of low-interest rates is that banks are less willing to loan money. Banks have increasingly heightened their standards and investigated and thoroughly vetted potential borrowers. All in all, interest rates are low, but there hasn't been a corresponding increase in loans. 

Galloway explains that real interest rates are "the rate of interest minus inflation." Accordingly, the combination of low-interest rates and rising inflation disincentivizes banks from loaning money. 

As a result of that unprofitable combination, top institutions would instead use their cash for trading derivatives between each other. Galloway notes if one of those significant banks defaults on their derivative, we'd have a repeat of the 2008 recession. 

Expand your portfolio, diversify your assets, and hedge against inflation. To do that, you might consider investing in Carbon Credits

What Is the Impact on People Who Hold Assets?

Inflation eats up your cash, but people in debt and assets benefit from it. If you hold assets, like real estate, during an inflationary period, those assets increase in value. 

Now might be a good time for you to invest in real estate. 

Indeed, prices are up, but so is demand. So far, there are no obvious indicators that the housing market will slow down. In addition, as Galloway mentioned, real estate, a tangible asset that appreciates, is a good investment during inflationary periods. 

If you are ready to take the next step to secure your financial freedom, check out: 

Key Takeaways

Never in history have we had interest rates this low and inflation rate so high. As a result, you need to protect yourself and your assets. Here are the key takeaways from today's discussion: 

  • inflation is an increase in money supply
  • price indexes measure inflation
  • the actual rate might be closer to 20%, not the reported 7.5%
  • low-interest rates and high inflation makes banks less likely to loan money 

During this period, it is an excellent time to be a real estate asset owner. If you want to learn more about market trends or other real estate investment topics, register for FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST.

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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