What do you think of when you think of an economic crash? What images come to mind and how would you describe them? I think most people would say things like massive unemployment, and the currency collapsing, and if they are informed they might even talk about deflation. You see a lot of crashes look similar. Some people might be surprised to learn there are multiple types of economic or market crashes.
The first crash and most well-known is the traditional market crash. This is a crash where the market massively corrects. This does result in massive unemployment and your currency will collapse, which results in deflation. Prices go down rapidly because of a collapse in the economic order that has been previously lived through. These crashes are devastating, but believe it or not they help reset the economy.
The second type of crash is an inflationary bust. This results in massive inflation due to massive money printing. This can be even more devastating as it not only sees your currency collapse but can destroy your standard of living. This kind of crash results in inflated asset prices that make it nearly impossible for many people to even get into the market.
A very good point of reference for an inflationary market crash or what I call a bust is what happened in Germany after World War 1. Germany lost the war and as a result, had to owe other nations money to rebuild infrastructure globally. They did not have the money so they printed the money. This resulted in hyperinflation. This destroyed their economy as it caused food shortages, and unattainable asset prices that people could not afford, which resulted in a decreased standard of living.
This is still happening today but in other areas of the world. We have seen this play out in Zimbabwe and other third-world nations. They create such inflationary busts that they destroy their economy. This type of economic bust will be devastating.
Most people in Western nations don’t worry about such things because we haven’t seen this kind of crash in our lifetime. The most recent experience we had was the 2008 real estate crash. We also saw the dot-com bubble burst and we saw hard times in the 70’s and if you are old enough to remember the Great Depression. All of these, though different, were similar.
What I am talking about has not been seen in America or other Western nations in our lifetime. Most people think this could not happen here. I would beg to differ. We are seeing historic highs in money printing. We are now printing trillions of dollars. This is causing record inflation that is out of control.
What happens next? We could see an inflationary bust in our economy. I would argue we are already in the early stages of it. We are seeing inflation rise, we are seeing asset prices rise and unaffordable for most Americans, and we are seeing an even greater wealth gap. This has all the signs of an inflationary bust.
There are ways to fight against this and win out against a runaway economy that is about ready to bust. We need strong financial education now more than ever. Explore Financial Freedom will be hosting a free online event called Explore Financial Freedom Online to help explain what we are seeing transpire and educate people on different ways to prepare. This online event will be happening Sunday, February 5 at 7 PM CST. Please email us at adam@explorefinancialfreedom.com to get signed up to attend this online event.