The Increasingly Fragile State of the Global Economy
The global economy is in a worryingly precarious state. Dark clouds are everywhere.
Multiple factors have converged to create a perfect storm of economic uncertainty that threatens growth and stability across many major nations. This volatility has critical implications for those of who are interesting in 3 day prepping.
In this post, we’ll analyze the shaky foundations underlying the global economy and why prudence demands we make economic preparations for the possible hard times ahead.
Inflationary Pressures Are Everywhere
Most major economies are experiencing inflationary pressures not seen for decades. In the U.S., inflation has reached a 40-year high, with consumer prices up 8.5% in July 2022 compared to a year earlier. The UK’s inflation rate hit 10.1% in July, the highest since 1982. Though less drastic, the euro zone still saw record inflation of 8.9% in July.
Several factors are colluding to drive this inflationary spike. Disruptions to global supply chains caused by the pandemic have restricted supply even as consumer demand rebounds. The war in Ukraine, or at least the massive funding given by us, has further inflated energy and food prices. Decades of easy monetary policies have finally caught up to major central banks as well, devaluing currencies.
Interest Rate Hikes
To curb inflation, central banks have embarked on aggressive interest rate hikes. The U.S. Federal Reserve has already instituted four consecutive 0.75% increases in 2022 and is poised to enact more, despite fears it could spark a major recession.
The Bank of England has similarly raised rates six times since December. While necessary, these actions will put further strain on economic growth. And growth is already under pressure.
The US economy contracted in Q1 and Q2 of 2022, meeting the technical definition of a recession. The UK likewise saw GDP contract 0.1% in Q2. Major economies in Europe, including Germany, are also nearing recession territory. A global downturn appears imminent.
2nd & 3rd World Economies Are No Better
Emerging markets are in particularly dire straits in the current environment.
The strong Dollar is wreaking havoc in developing countries saddled with Dollar-denominated debt like Sri Lanka and Pakistan, both of which have defaulted on obligations. Political instability in major emerging economies like Brazil and Mexico creates further uncertainty heading into global recession.
Even resource-rich countries are struggling due to fluctuating commodity prices. Saudi Arabia’s economy actually shrank 1.1% in Q1 2022 despite surging oil revenues. Global trade disruptions and supply chain issues are having ripple effects across every region.
The Outlook From Here
So what does this fragile global landscape mean for the average American’s economic outlook?
Given the U.S. role as the world’s largest economy and the Dollar’s status as global reserve currency, we are unlikely to escape this downturn unscathed.
Americans should brace for potential impacts including:
- Job losses and higher unemployment as corporations cut costs and consumers reduce spending. The U.S. has already seen 3 million layoffs in 2022.
- Further inflation squeezing household budgets. Prices may recede eventually but will likely remain painfully high.
- Stock market declines reducing retirement account balances. The S&P 500 has already fallen over 15% year-to-date.
- Possible housing market correction lowering home values if demand falls. This could have severe consequences for household net worth.
- Credit tightening making loans harder to obtain for major purchases or to start small businesses.
- Disruptions to exports and supply chains from global trade breakdown impacting American producers.
The prudent choice in the face of such uncertainty is to batten down the hatches and build financial resilience at the individual and household level. Now is the time to:
- Pay down high interest debts that erode cash flow
- Gradually stock up on essentials while prices are still stable
- Increase emergency savings to cover 3-6 months of expenses
- Make careful budget cuts like eating out less while retaining flexibility
- Diversify assets and savings across different vehicles like cash, precious metals, real estate, crypto, etc.
- Explore ways to boost income like monetizing skills or generating passive revenue.
The storm clouds gathering over the global economy do not necessarily mean we are doomed. But they do signal choppy seas ahead to which Americans must adapt.
Stay nimble, build shock absorbers into your financial life, and you can weather almost any economic storm. Those who prepare will fare much better in the years ahead than those who place blind faith in continued stability.
For those who think the ‘nanny state’ will be your lifelong ‘fix everything fairy’, take a peek at a history book for an idea of how flawed that idea is. Governments do take care, of themselves. The impression they are taking care of us is merely a vote-grabbing tactic, a facade which sadly far too many people believe in.
Act now to take control and safeguard your household’s economic future, as well as your physical safety.
