News about inflation and a looming recession has been dominating the headlines, but what does all of this mean for us and our finances? These are the topics that we’ll tackle in the next couple of episodes of CFO at Home. We’ll start today by talking with Economist Eric Mason to gain a better understanding of inflation, recessions, and how things got to where they are today.
Key Takeaways
- Inflation
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- A measurement of how much prices have changed relative to some point in the past
- Core Inflation - how stabilized prices that ordinarily do not change over time are changing; Durable goods (washing machines, refrigerators, etc)
- Contributing factors
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- People are earning more. More buying power drives up prices
- Deficit spending
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- US Treasury has to borrow a dollar for every dollar it releases into the economy
- Deficit spending overheats the economy
- Producing beyond the production frontier - When an economy produces more than what it should be producing without taking on debt
- Pandemic stimulus payments increased deficit spending even more
- To equate to a household; if you constantly dipping into your saving or running up credit card, you’re not increasing your overall financial health
- America enjoys “privileged nation status” because we borrow money in our own currency because the US dollar serves as the world’s currency
- Recession
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- A retraction of GDP across two or more consecutive quarters
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- GDP is “Gross Domestic Product”, the value of the goods and services produced in the United States
- When the capital you have depreciates and you can’t replace it
- There currently aren’t that many traditional indicators that a recession is coming
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- Significant numbers of jobs are still being added to the economy
- What can we do to prepare/manage through
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- If you’re currently budgeting, revisit your budget and look are opportunities to reduce spending in targeted areas
- If you’re not budgeting, start!
- Be discriminating in what financial information you listen to
Resources
Contact the Host - vince@thecfoathome.com
