From 2016 through 2020, Americans enjoyed a $4,000 boost to their purchasing power. Real median income in the U.S. for 2016 was $66,657. That’s a 6% gain on the most common measure of U.S. earnings power.
You almost certainly noticed this positive trend.
Since the Biden administration took over, however, there has been a $4,200 reversal in median income. And that doesn’t include the 25%+ drop in the S&P 500 index. Or the slide in home prices that’s already well underway for the first time in a decade.
You’ve probably noticed all that, too.
If you’re waiting for another round of government spending to save the economy, don’t hold your breath. Interest rates on government debt are higher than any point since the Great Recession. The market has finally called the government’s bluff, and they’re paying for it – literally.
Higher interest rates mean governments worldwide, not just in the U.S., can’t spend recklessly anymore. It’s just too expensive.
How did average Americans get struck with a $4,200 reduction in their purchasing power so quickly? We need to know what type of storm we are in to know how the damage is done… and to know how to protect ourselves from it.
The Damage Done
One major reason is pictured above. In January 2020, M2 money supply stood at $15.4 trillion. This is the Federal Reserve’s measure of cash in the economy. That sounds like a lot until you look at the same number today: $21.7 trillion.
That’s a 41% increase in the amount of U.S. dollars floating around the system in less than three years – and that’s the government’s own numbers.
The upward track in the money supply became vertical with COVID-19 spending. 43 government agencies disclose a total of $4.63 trillion in “COVID-19 spending.” To put that into context, that’s more than the entire M2 money supply in 1999.
History tells us what out-of-control government spending does. Consumer prices have risen 12.7% since the start of last year and there are no signs it’s slowing down. Inflation was only at 1.4% in early 2021. Today, it’s multiplied to 8.2%.
Wages aren’t even close to catching up, and that’s as of the latest data released in September. In August, CNBC reported 50% of employers expect job cuts in the near-term.
Based on all available data, the Fed can’t seem to break inflation and the job market is getting worse.
I don’t know if we’ll enter a period of stagflation like we did in the 1970s. But there are enough similarities that we should be wary. They include high government debt, even higher inflation, and weakening economies. Sound familiar?
Investors caught off guard today will pay a heavy price. Many already have. Those living off investment income can’t rely on what’s worked in the past.
Greater Wealth Than Ever Before
Fortunately, Wide Moat Research specializes in finding the most durable companies possible. That includes real estate investment trusts (REITs), master limited partnerships (MLPs), and traditional dividend stocks.
Many of these companies have not only paid – but increased – their annual dividends for 25 years or more.
One of our favorite stocks today is Realty Income (O). It has increased its dividend every year for more than 25 years. We believe its business is among the most inflation- and recession-resistant in the whole U.S. stock market. Now it’s finally trading at a great price.
Realty Income is a great example of how we take advantage of tough economic times by buying excellent companies at excellent prices. It’s easier said than done, but we’ve been doing it for many years.
We’ve also been perfecting an enhanced version of our income strategy, which Brad and I revealed for the first time last night. I’ve personally made over $45,000 in extra income using this strategy since the start of 2020. Many of our trades have generated the equivalent of 10 years of dividend income in just a few seconds.
Tune into to the rerun of our Bidenomics Summit webinar to learn more. This special strategy isn’t just designed to replace the precious purchasing power we’ve lost. It’s meant to create greater income than we had before.
Happy investing,
Stephen Hester
Analyst, Intelligent Income Daily