A Primer on Inflationary Business Conditions (Segment VI)

Preface: No act of kindness, no matter how small, is ever wasted. -Aesop

A Primer on Inflationary Business Conditions (Segment VI)

Inflation, as described earlier, can be likened to the printing of books. Although often misunderstood, there exists a finite market demand for any product or service. For instance, after, say, eight or nine billion copies of any book, with some avid readers owning ten or fifteen copies, there eventually is a point reached called market saturation.

Market saturation arrives when the volume of a product or service has reached its peak optimization for demand. In other words, the marketplace demand contrasted to the supply capacity is optimized. Examples of market saturation could be five soft pretzels stands in a farmer’s market, or when robotic automation floods a marketplace with manufactured inventory like laptop computers? Perhaps planned to obsolesce of products like textbooks or broader menus for the pretzel stand. Effective marketing plans are most important when a business nears, reaches, or passes these points of market saturation. Why? Because the enterprise needs increasingly unique sales methods to continue to gain (or keep) market share for successful sales channels or to outperform the competition.

Any currency also has a market saturation point for purchasing power. So as there cannot be an end without a beginning, likewise to all beginnings, there is an end. Therefore, any end turns into a new beginning.

Inflation is part of any currency management, but there are two types of problematic and taxing inflation. These are hyperinflation and stagflation, respectively.

It is presumed that hyperinflation, or the increase of prices rising more than fifty-two percent each month, is only a slight concern that typically only occurs jointly with a civil disorder or the financing of sizeable national spending catalysts. Therefore, this probability, while not impossible, is less probable.

Stagflation is another form of inflation that is economic patois for inflationary increases in prices, corresponding with a stagnating economy and high unemployment rates. Stagflation is also a most troublesome form of inflation because incomes and earnings do not grow while simultaneously consumer buying power deteriorates, leading to cashflow budget blockades.

Without infrastructure spending and job retooling programs, escaping a developing stagflation environment for business may continue to be elusive in the United States. If minimum wages do not increase, then with the recent year’s price increases in autos, residential real estate, or food, this economic state of stagflation will be a potential economic reality.

To escape the spiral of demand destruction from gaining root from the lack of economic drivers at work (best exemplified in minimal unemployment benefit payments and an increasing of disincentives to work), this could be an economic era similar to the 1970s when economic growth was slow, and interest rates elevated. That business era was marked with higher commodity prices and rapid descent of consumer and business purchasing power along with stagnating incomes and earnings levels, creating a host of economic challenges. Thanks to Paul Volker and friends with a successful and expertly crafted financial plan, they resolved this problem, including a rocket ship approach to interest rate increases, resulting in decades of relatively contained inflationary variance risks. It is this monetary foundation and expertise that has given us a golden business era. Stagflation concerns and implications were resolved most recently with the Tax Cuts and Jobs Acts.

The above 1970-80s resolutions to stagflation are unlikely and formulated on the contingent possibility that capitalism and industry dynamics prevail vs. an emerging new quasi-social economic order with universal basic incomes say. In that later scenario, we would be indeed on a bay towards entering financial waters that have yet to be entirely mapped, requiring foresight without precedents for successful business planning.

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