Inflation affects everyone as it makes life more expensive and harder to save and invest. In 2021, the world is experiencing inflation everywhere, variable in degree depending on where you live. We should always take the opportunity to learn especially when it comes to finances. Yesterday I tuned in on some interesting documentaries. It turns out in today’s case study, Lebanon is experiencing hyperinflation to the point that everyday products cost double of what they used to cost. The cause of this crisis is a combination of the Port of Beirut explosion causing billions in damage to surrounding facilities, the pandemic hindering businesses, but mostly above all greed, corruption, and mismanagement within governance. In one video produced by Vice it mentions that people can no longer afford to eat meat anymore. In business, when the cost of raw materials shoots up the price difference transfers onto the end products. This is includes feed for animals. The privileged families that can afford to make purchases are paying double what they paid for sheep last year.
The country is in chaos and imploding within its borders. Citizens are infuriated that the bank gives them limited access to their own savings. Reports from other articles mention that the Lebanese Central Bank does not have enough dollars as it is being reserved for imported goods until new capital is raised to bail out the banks from the dollar deficit. Banks have been called on to raise capital on their own. This can be done in several ways but not all banks have the ability to do so. Some banks have been accused and have further accused the Central Bank as the trigger of the ongoing crisis. Many of the residents who have the means are moving out of the country. The Lebanese lira currency has fallen far and now pales in comparison to other currencies.
Now that we’ve had debrief on the current situation in Lebanon. Here is a hyperinflation breakdown from Investopedia below.
Hyperinflation is a term to describe rapid, excessive, and out-of-control price increases in an economy, typically at rates exceeding 50% each month over time.
Hyperinflation can occur in times of war and economic turmoil in the underlying production economy, in conjunction with a central bank printing an excessive amount of money.
Hyperinflation can cause a surge in prices for basic goods—such as food and fuel—as they become scarce.
While hyperinflations are typically rare, once they begin they can spiral out of control.
The two primary causes of hyperinflation are (1) an increase in money supply not supported by economic growth, which increases inflation, and (2) a demand-pull inflation, in which demand outstrips supply. These two causes are clearly linked since both overload the demand side of the supply/demand equation.
What we can learn from this analogy is that printing money is not a solution nor is over-borrowing to compensate from mismanagement. The solution is to promote economic growth by surging the production of valuable goods and services. Volume drives down prices. Producing goods is a more intrinsically valuable and sustainable system than over-relying on imports which incur shipping and land transportation fees. An import system should only be used for products where the raw material needed for production cannot be cultivated or mined locally.
On a personal level holding cash will make you lose the most during inflation. Investing your money in defensive growth stocks can help match against inflation, it is worth looking into solid REITs. When it comes to everyday purchases certain supermarkets and hypermarkets offer bulk prices which are worth looking into to get value for money.
Lastly, I have a quick announcement. For those who have been following me from the start and recent followers, I wanted to say thank you for your support in reading my articles where I share insights and investing tips. This week I worked on kick starting my Youtube channel, this will be a medium allowing a two way communication between readers and I. I produced a video of the popular article I wrote and that you might remember. Stocks, Cryptocurrency, or Forex which ones should you invest in? It’s a little more crafted than the article so do check it out, and if you could go ahead leave a comment on the video telling me all about your thoughts of the video in terms of content and production I’d appreciate it. I intend to making more videos on meaningful topics. I’m looking for feedback so that I can produce quality videos for you guys, so do make your opinion count.
