Inflation we can all count on

Today a lot of people are talking about the tariffs going into effect. “Liberation Day” and all. Yeah, I don’t know what’s gonna happen and neither does anybody else. But aside from the chaos of the day, there’s a lot that we do know and can plan on.

You’ve probably noticed that things cost more over time. Insert old person rant here about how a dollar doesn’t go as far as it used to. We’ve all heard it before. I happen share a home with a Mother-in-Law four decades older than me, so I hear it on a near daily basis.

The US Dollar losing value isn’t unexpected though, in fact it’s very reliable. Sure, there can be big fluctuations in short time spans, but taken over longer timespans, it’s fairly steady. Steadier than most things over time. I’d go so far as to say you can count on it.

The Federal Reserve does. They even set targets for how much money they want you to lose over time, like “2%” which really doesn’t sound like much, right? Though due to math we’ve had down pat for centuries, that equates to prices doubling every 20 years.

Keep in mind that’s not what actually happens, that’s just the stated goal. As in, if everything goes according to plan and there aren’t any big surprises like pandemics or wars or changes to the financial system or new technology that alters the balance between capital and labor over the next 20 years. Not like any of those things could ever happen :p

In reality, it’s averaged to 3-4% per year since WWII (red line below). Though that’s a bit deceptive, not just because it’s an average of an annual percentage swinging between just under 0% and over 14% (blue line below), or because the official government calculations have changed so much in that time, but because…

Wait, how many years have there been since WWII? Oh right, 80 years. And what does 4% compounding over 80 years do? It does the compounding dance as the green line shows below. That’s the one to watch.

The green line says that if you’ve lived over 80 years (as my stay-at-home Mother-in-Law has) then you’ve seen a 1673% increase. Or to put it another way, what you could buy for one dollar in 1945, now takes nearly eighteen dollars to buy. Which is admittedly worth griping about every so often.

But now let’s take the info we have and apply it to our future with my ABCD method. We’ll chart this to the end of the century, which is another 75 years. I plan to live about that long, and you might want to as well.

If all goes according to Fed plan, 2%. That’s the A for Awesome case. That looks like this.

If the last 80 years of US historical average continue, 3.7%. That’s the B for Bad case.

But what if the current chaos of tariffs and trade wars does what many think it will? This is the C for Catastrophic case.

Though let’s temper it a bit from the hyperinflation scenario where things spiral out of control to exceed 50% per month (more than 12,000% annually), and just say that it roughy doubles to 7.5%. That’s the kind of inflation many countries in the world have had to deal with over the last 80 years, and can still operate within even if nobody is happy about it. While this would probably feel catastrophic to us, it wouldn’t necessarily result in a total collapse of our currency (which we’ll examine in our D scenario). Okay, here’s the really bad scenario chart.

Lastly, there’s the one thing that we all know will happen eventually, the US Dollar will do what all fiat currencies do, including global reserve currencies. It will fade from prominence and eventually die out. That’s D for Death.

And like death, we don’t know when it will happen, and hopefully we can put it off as long as possible with the actions we take, but there is no doubt that death is what will eventually come given a long enough timespan. And do you really need a chart for that? When this happens, wealth doesn’t have to disappear, but denominating it in dollars no longer makes sense. It’d be a chart in some other currency, or probably cryptocurrency. Or maybe something like the ESG measure that I devised last year.

Now I don’t know that I’ll be around to see this happen, but given all that we can see coming from here like, oh I don’t know:

• net human population decline
• non-fiat economic competitors gaining viability
• decoupling capital from labor with AI and robots
• potential adversarial actions and our lack of economic defenses
• political incompetence running rampant here at home and abroad
• as well as all the stuff that we can’t see coming from here (unknown unknowns) Given all of that? I actually expect the effective USD demise within the next 20 years. Though I’d really much prefer to be wrong on this, trust me!

If you think I’m wrong in my estimation, don’t just tell me that. Run your own numbers, and show me up! You do need to be thinking for yourself about stuff like this if you plan to be around for another decade or more, or just if you want to make things easier for people you love and who will be here after you’re gone. You can totally model all this stuff with AI, like I did. Or you can run a simple historical calculation for yourself here and extrapolate a bit: USInflationCalculator.com

My point is, it’s more than just complaining about prices when you’re 80 and the world has changed. Do you want your family to have to come live with you and support you? Would they do that? Would you even have any family left at that point? Outliving your finances is real. And it’s very likely to occur, UNLESS you take the time to see how the deck is stacked, and place your bets accordingly.

I’ll leave you with one final chart. One that marries up all 3 we looked at here today so you see all the lines in one spot and the exponential part sets in.

You can say this too much to think about today. Fair, it’s a lot. But eventually as the predictable things predictably occur, it’s your future self that will have to pay the bill.