The West is aging, buying less and less.
What will 2022 bring?
Sure, forty-year olds have midlife crises’ and buy Porsches, but sixty-year olds? To make up for pandemic’s declining-in-buying, banks have pushed more money into the economy. With more money than they need, even older people buy Porsches (though most goes into the stock market or real estate).
Putting old people aside, what’s important is everyone is spending new money. Money is pushed into our bank accounts and we spend it.
Do you believe this is happening? Money is being pushed into our pockets?
Or do you believe what the amount of new money is irrelevant? People work. Save money. Go on vacations. Sure, there are always problems — people too rich, people too poor — but the economy changes little.
For this group, pushing money into the economy doesn’t matter. What’s important is that everyone pulls from their paychecks or savings and buys stuff. We pull money when we need it.
What makes money difficult to understand is that when we talk about what money buys we generally talk in the here and now; that is, we talk about the Porsche we’re getting today, not so much what happens afterwards.
Except subconsciously we’re not thinking about the Porsche. We’re thinking about when we’ll have the money. We’re thinking about the future; will we need the money for something else? How much will the Porsche cost in future monthly maintenance?
What worries some savers is that too much money getting pushed into the economy will lead to future Porsches costing more than what we have saved today. That makes sense right? If everyone gets paid more in the future Porsches will cost more.
In the graphic below we compare an old person to a young person, both during the pandemic, when lots of new money entered the economy, and afterwards. To be clear, the old person is a stand-in for anyone who lives mostly on savings than income.
In 2022, incomes go up because there is more new money in the economy to pay out.
Pushed money decreases the wealth of today’s saver and increases the wealth of the future earner. Again, if you buy into the theory that the more money the banks put into our hands the more things end up costing.
The irony is that many savers go along with all the pushed money because they want to protect the value of their assets from a pull depressed economy. They can’t think in time, only the here and now. They see all the people losing their jobs, spending less and they say, ‘give them some money to tide them over!’
It’s been working but eventually it might flip and the pushed money will deflate their asset values.
One definition of Inflation is the future devaluing of savings.
I hope this has been a thought-provoking, non jargon explanation, of why your friend or family member, decrying all the “printing of money” believes the banks are taking from their savings and redistributing to those in the future.
The above scenario may not play out. Our aging population, which spends less, may not buy enough to create a supply-and-demand inflation. We’ll just have to see.