The growth and future of money

Key takeaways

  • [5:16] Textbook answers about what drives inflation and how it plays out in the real world. 
  • [7:15] The influence of the Fed on supply and demand. 
  • [16:15] Why aren’t more people working as inflation drives up the cost of living? 

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Several factors lead to inflation and investors should pay attention to the various trends that impact the finance and investing world according to Michael Schnur, DBA, Assistant Professor of Economics at the University of Lynchburg.  

“And now, especially the younger generations, this is their first one at inflation, we really haven’t had any since the 80s,”  Schnur told The Yield. He said there are ways to invest in an inflationary environment where there is also a widening generational wage gap.

Schnur said In this volatile, post-pandemic environment, it is relatively easy to teach students about the real-world impact of inflation and the textbook information about the potential drivers of inflation and how they tend to play out in the real world. 

“If the Fed raises rates and we see the 10-year [U.S. Treasury bond] go down, which I believe they will, welcome to the recession,” he said.

According to Professor Schnur, an excess of money tends to be the driver of inflation, and coupling that with the strong demand for supplies that has recently surfaced as a result of supply chain issues results in speculation over how the Fed will respond.  

Schnur addressed what he called the tsunami of supply issues over the past year.  He said we should have grown into these supply issues even if Covid-19 had not happened, but he pointed out a lack of investment in infrastructure, especially in energy production domestically, as well as a lack of an educated labor force capable of moving freight quickly and inexpensively has developed into a major problem in the United States. 

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He also raised the possibility that inflation is actually a self-fulfilling prophecy, with many people expecting that prices can only go up and up. Schnur argued that the best way to fight inflation is with a recession. “Raising rates cutting back on the supply of money and that can be quite detrimental right now, as we talked about before that trade-off, I mean. You know you’re willing to have high inflation just to keep the economy going, you’re willing to lose your job, just to take care of inflation,” he asked?

With 11.5 million open jobs in an inflationary environment, Schnur asked how can people afford not to take the jobs that are available? Even with rising gas, grocery prices, and increased living expenses, many people are choosing not to work. Schnur said as a recession becomes a more likely reality, there might be more of a rush toward the jobs that are still available. 

Schnur warned listeners of the different potential reaction from employers at the low, mid, and high wage ranges, and explained why some employees might experience successful wage negotiations while others are going to be faced with a higher risk of layoffs. 

Schnur has an extensive background in the world of asset forfeiture and also shared his insights into how people have traditionally tried to circumvent rules and regulations.  Not surprisingly, crypto he said is now playing a potential $8 billion role in these crimes.  Drug cartels are also experiencing changes in the light of crypto, but Schnur said it has slowed down money laundering as the drug dealers don’t tend to use it because they don’t have control over it. 

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