How Inflation Will Change Industries

By: Curtis Wayne 0 Comments   3/15/2019

It is not easy to predict how inflation will change different industries but it is usually clear many years later.  One way to beginning is to look at the asset bubbles, because when new money is added into the economy is always goes somewhere. 

The industries that get the new money first have an advantage of growth and rising asset prices, followed by sales and wages increases.  But the new money also causing these industries to look better than they are, driving more credit and labor to move into the industry than should have. 

A few years later, when the prices get too high and consumer pull back, the industry suffers a major correction.  This is called malinvestment.  

The U.S. economy has not been in recession for ten years, but the trillions of dollars added to the economy has created many asset bubbles.  

Several industries are in bubble territory and consumers are maxed out with debts.  Stay clear of collapsing industries like Retail, Auto, Housing, Construction, Restaurants and Banks.  

Industry changes to consider

  • Retail – The retail industry is suffering from several things right now, online sales gets all the blame, but inflation is also playing a key role is the demise of the retail industry.  Inflation is especially hard on industries that rely on imports for several reasons.  First, inflation causing the value of the currency to drop and the cost of imports to increase. Second, inflation cuts profit margins on products that take a long time to produce because by the time the product is designed to the time it is put together and sold, the material costs have increased and the sale prices have to increase to cover the future increase in material costs also.  Third, increasing interest rates make is more difficult to service massive debts already leveraged on the retail industry for previous years of malinvestments. 
  • Autos – Used autos will flood the market as people can no longer afford monthly payments, which will drive down prices and drastically slow down new auto sales.  Used part dealers and auto repair shops will may see some growth as people drive older autos longer.  New cars prices will continue to climb with the increasing cost of imported parts and the long time is takes to manufacture a new car pushes up prices to protect profits from higher material costs for future parts.
  • Housing – Rising interest rates have already slowed down housing sales, some areas are already seeing major declines.  New housing prices have been pushed up by so many things like higher-property tax, higher-sales taxes and higher-wages that cannot quickly reverse, which will keep new home prices high and out of reach for many in the middle class that are already facing record high consumer debts.  This will likely to lead to the second large housing market correction.  Many industries are part of the housing market.  For example the Furniture/Appliance industry will following the Housing slowdown. 
  • Construction – The slowdown in the housing market will slow home construction to a crawl. Many will move to the many half empty apartments that have been built in the last decade while credit was not easy to get.  Commercial construction will also slowdown because it will be difficult to raise taxes for any new construction projects.  It will be difficult to collect all the tax increases that have already passed to pay for the new schools, churches and government building that have already been built with future tax collections bills.  Banks will be more reluctant to fund projects as interest rates are higher and material costs has got up.
  • RestaurantsHundreds of restaurants have already been closing in just the last few years, because consumers have too much debt and cannot afford to eat out anymore.
  • Banking – Banks are lucky to be the first industry to get their hands on new money added into an economy.  The new money added from the 2008 recession was primarily given to banks, to keep them from insolvency when asset prices collapse.  But now that the economy is growing and the new money has made its way into the economy, it has created many bubbles and when those industries start to pop the banks will lose a lot of money that they have tied to these bubble assets as collateral.  Banks also lose consumer loans once consumers stop buying cars and houses.  At the same time, banks will get access to the next round of new money first so making friends with a many banks will help you or your business get access to credit at a time when credit it difficult to get.
  • iPhone/Social media – As the recession deepens, many consumers will drop coverage and stop buying new phones, move to cheaper plans and cheaper phones.  Social Media companies will collapse with the collapse of online ad bubble as consumers pull back.
  • GovernmentsTrump’s 2020 budget has a 5% cut to government departments.  This is just the beginning of government cuts.  As the recession deepens, the government will be forced to cuts costs, including entitlement programs like Social Security, Medicare and Medicaid.  Inflation is the underlining reason for the recession.  Inflation is the reason for the assets bubbles that will pop.  Inflation will cause expenses to increase (expressed in higher import prices, greater trade deficits) and income to drop (expressed in tax revenue dropping), government programs will be forced to cut programs, teachers, road construction, health care services, college funding, pensions, etc.
  • Higher education – Student debt is $1.5 trillion and climbing.  Many of these loans will default once the recession is realized.  Once the student loans go bust many colleges could be forced to close or merge with other colleges. Students will try to find other options, online schools, 2-year tech schools rather than 4-year colleges.  Private schools will continue until the stock market crashes and the wealthy lose the money they use to pay for their children’s private education.
  • Healthcare – As the recession deepens, people will no longer be able to pay their medical bills.   Many people already have higher deductible insurance plans than they can afford.  Unpaid medical bills' is the number one reason people file for bankruptcy.  At the same time baby boomers will continue to support the medical industry with a higher demand for surgeries and medical devices.  The pharmaceutical industry is also changing, they have begun reducing investments in research of new drugs because of the increasing risk of future government price controls and the increasing risk of failing to pass clinical trials.

These are some of the changes to industries because of the inflation (new money) that has been injected in the economy since the 2008 recession.  Few economist are pointing out that these changes are due to inflation. 

Copyright © 2021 HowToSurviveARecession.com. All rights reserved.

Reader Comments

Be the first to leave a comment!
Write a Comment

Please keep comments civil and on-topic. Abusive or inappropriate comments will be removed without warning.

 Name (required)   
 Email Address (required)   
 Website URL 
Comment  
The Sale of a Lifetime: How the Great Bubble Burst of 2017 Can Make You Rich

Harry shows you what makes the years after a massive bubble reset so valuable to investors and businesses ready to make the most of the opportunities that fall from the sky. Harry recognizes that we are about to go through a very difficult few years, but he also knows there are INCREDIBLE opportunities that could help build you a personal fortune that will last the rest of your life!

Money: How the Destruction of the Dollar Threatens the Global Economy

Steve makes a case for the importance of ‘sound money’ and the pending global economic collapse without it. Steve points out how the entire financial system is like a house of cards because money has lost its measure of value and the only solution is to return to ‘sound money’. But Steve does not go far enough, he does not ask why a nation begins printing money. It begins when the people cry out to their government to be their god – to set things right in their own eyes.

Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown

This book is about how to protect yourself and profit in the next global financial meltdown. David points how that endless debt is never sustainable and it not going to end well. “… eventually forcing both a burst, creating a worldwide mega-depression.” David also explains that the financial crisis was not a uncontrollable random act, rather it was an inevitable consequence of the popping debt bubble.

Gold: The Once and Future Money

Governments and central bankers around the world today unanimously agree on the desirability of stable money, ever more so after some monetary disaster has reduced yet another economy to smoking ruins. Lewis shows how gold provides the stability needed to foster greater prosperity and productivity throughout the world. He offers an insightful look at money in all its forms, from the seventh century B.C. to the present day, explaining in straightforward layman�s terms the effects of inflation, deflation, and floating currencies along with their effect on prices, wages, taxes, and debt.