 Good morning on a Monday. This is the 9 o'clock clock. I'm Jay Fidel. It's Think Tech and we're talking about hyperinflation this morning. We ought to think about that with Gary Wilkins of MLA companies. Welcome to the show, Gary. Thank you. Good to be here. So tell us what your position is with MLA companies and and your qualifications to talk about hyperinflation, which is not an easy topic these days. Yeah, well MLA companies is they were a business service financial services provider in Southwest Ohio, but we serve our companies all over the United States and we provide what's called fractional CFO services, so small to midsize companies that can't perhaps afford or don't want a full time CFO, but need some high level financial expertise. We can provide that on a contractor hourly basis. So that's our role and my role inside MLA is I do operations, what we call organizational effectiveness. I do some client work when it comes to leadership transitions or developing processes, technology platforms, things like that, and I also then work on internal processes inside the firm as well. So that's that's my role in my background. You know, inflation, I wouldn't claim any particular knowledge except the general history and economics and being pretty close to small business owners that are working through these questions and are trying to think through some of the questions as well. So we've been having those conversations with them. So I'm glad to be with you today. Sir, I think very important, you know, and we're talking about pumping trillions into the economy. We're talking about tinkering with the tax system. We're talking about, you know, doing a lot of giveaways if you will. That changes the changes the basic arrangement economically and given country and and we have seen for one reason or another cases of hyperinflation in Europe in the I guess in the late twenties and thirties there was a significant type of inflation there. We've seen it in South America. I know that. So it is scary and I wonder if you could talk about, you know, where it has popped up in the past and what effect it has had in those places where it has popped up. Yeah. Yeah. You know, there's really no agreed upon definition of hyperinflation. And so we think of the extreme examples, you know, Germany before World War Two Argentina, where money essentially became worthless. And those are obviously most extreme situations we can think of recently. You know, some people would say, well, once you see, you know, sustain of a certain percentage over a certain period of time that it qualifies for hyperinflation. But the fact of the matter is it depends on where you feel it. Where does it affect you? And that causes the concern and the way that you want to deal with it. So it's not so much a question of what's the definition. It's more a question of how is this going to impact me and what steps do I need to take either from my business, my family, my retirement, any of these other questions to take that into account. Well, hyperinflation must be distinguished from ordinary inflation. And, you know, you hear about ordinary inflation at, you know, a small percentage point increase all the time. They don't hear about deflation very much. I guess we had that in the thirties. But, you know, the problem is where does it cross the line? Hyperinflation obviously can go in dangerous to more people and to the economy in general. But where does it cross the line where we need to be more concerned about it than ordinary inflation? Yeah. Well, that, again, that's something that there's some debate on. Really, that's often a historic question. So you can look back and say, okay, that's where it was, right? Now, we've been through two significant economic upheavals in recent memory, the 2008 financial crisis, 2020 with COVID. And, and interestingly enough, you know, there was a lot of talk at the beginning of COVID with what we'd learned from 2008. And one of the general consensus was the government didn't act fast enough or big enough, even though the amount of money they pumped into the economy at that point was unprecedented. Some of us will even remember back 9 11 and kind of the impact of that event on the economy as well. So, you know, as far as when it crosses the line into concern, there's other key factors for what you mentioned, government spending. Obviously that has tax implications. The United States is in the unique position of being a, you know, the dominant global economy. And, you know, there's many people who voice their concerns that were taking advantage of that, that if China or another consortium of nations, if for a while it was concerns about the EU, that's kind of dropped off because of some of the problems their member countries have been having. Obviously, China is the big one on the horizon right now. If the company decides to dump a lot of money into international markets or do something themselves, that could start to affect our position. Generally, our sense is, you know, the US dollar is still the standard of international exchange in most places. So there seems to be a little bit of a buffer before we reach some of those events. But we've been caught off guard many times before. And so I think it would be wise for individual business owners and citizens to take individual measures where they can in a reasonable way. Yeah. So one thing you mentioned that I'd like to pursue is this whole notion of traditionally inflation has been by country, if not neighboring countries. But now perhaps we're not limited to country anymore. Perhaps in one of the surprises of the inflationary surprise we can experience going forward. We're going to find out the world is really flat. We're going to find out it's all independent, all related. And we could have, am I right about this? We could have an inflation that was essentially global, even though you have various currencies and economies involved. Is it true? Well, you know, again, theoretically, yes, that's possible. You know, you look at even what's happened with cryptocurrencies and the incredible changes and values we've seen, like just astronomical increases. And and in one sense, that's all theoretical, right? But as soon as people begin to parade on that value or begin to trust in that value, it's just it's, you know, money is very much a psychological thing. It's very much an agree a societal agreement as to how we are going to communicate and assign value. And so psychologically, things can shift very quickly and in very unexpected ways. And so yes, it's foolish to take the attitude, well, this can't happen for X, Y or Z. It's necessary instead to say, well, here, you know, here are the indicators or here are the steps that would get us between here and there and how do we pay attention to those things? You mentioned, you know, and I did to the the notion that if you pump money into an economy, especially print press money, you know, that that's not backed by any particular gold standard or, you know, value standard, then, you know, you run the risk of inflation. But are there are there any other factors that could lead to inflation, particularly in this country? We know the government right now for good good and valid reason is pumping a lot of money into the economy. It's writing checks everywhere, trillions and trillions. And at the same time, you know, it hasn't really increased the rate of tax, which which was quote reformed and quote in January 2017. So so the question is if you don't have an increase in tax and you do spend print press money, is is there is that's a big factor, obviously. Nobody will argue that. But what about other factors that that would add to that and make inflation more likely, more dramatic? Yeah. Well, one is key interest rates, right? So the Fed sets interest interest rates that control the rates that banks can lend money to each other. The Fed can lend money to banks. And those have been almost impossibly low. Like we've been down to the point two five percent range, quarter of a percent range for a while. And that's been for quite a period of time, you know, it used to be around five percent that interest rate was kept. And that just that kept some controls on the supply of money. And it meant that there was room for that rate to dip down and then come back up. Well, we've kind of been in that emergency low mode now for quite a while. There was some effort around 2016 to start bringing it up again. But then of course, as soon as we hit COVID, one of the first things they did was drop the rate down. And the reason that's a concern is that when rates are that low, they can only go up. There is no room then to lower those rates. And if rates go up, then that means that, you know, A, the cost of money gets more expensive. The cost of borrow money becomes more expensive. Things that are like driving the housing boom stuff like that are affected. But at the same time, money that you possess now becomes less valuable because it's not being accounted for through this potential rise in interest rates. So it starts to play with the numbers. There's some positives from it, but there's also some implications of it. And so interest rates are a key thing. And you'll see that that's a headline, right? That's a regular headline. What's the Fed talking about related to interest rates? And there's been some statements back and forth. No changes right now, but it's always an option. It's something we expect to do again. Yeah, and some sometimes interest rates by the banks go up. You know, even if the Fed doesn't do anything, for example, I read recently that mortgage rates are going up. They're still not high. There's still a three and change, but that's not necessarily set by the Fed. It's set by the expectation of the bankers and their underwriting considerations in making mortgages and loans, for example. Yeah. Is there is there a process in this country now? Well, that's a broader question. Is there inflation now? And to what extent do we have inflation? And you know, my wife tells me that a loaf of bread costs more that safe way now. And her friends tell her the same thing. And yet, you know, maybe we don't look at enough economic reports from the government, but it seems to me and sort of as a street talk anyway, there is inflation in what you have to spend. Am I right? Yeah. So there's no question that we're experiencing inflation and you know, because you even your observation about mortgage prices, right? Even though that's not being driven by a Fed or an interbank rate, that's being fed by a demand. People are willing to pay more and so prices rise as a response. And so the second main category you've got got interest rates. You've got government spending and then the second, the third main category between those two is high demand for products and services, right? As soon as people want things they can't get, they're willing to pay more for it. Prices go up. Everything starts to be affected by that. And sometimes that's driven by the fact that we have all of this pent up consumption from the period during COVID when we couldn't buy or do certain things. Some of it may be that there's been huge disruptions and supply chains, you know, ship getting wedged in the Suez Canal of all things, right? All of these factors that just send these ripple effects through the economy and pretty soon prices start to rise and that is inflation and its most basic definition. So there's no question we are experiencing inflation now. There's no question that there are factors that could increase that rate of inflation. The check against that or the reason why we don't think yet it's time to take extreme measures is that there's just so much slack in the economy with demand for supplies and services and also in employment. You know, there's a lot of people that are seeing wages increase because jobs are, you know, it's hard to find good employees. At the same time, there's a lot of people still unemployed. And so we just haven't quite solved some of the logistical problems of connecting supply and demand. And we expect that once those problems are solved, some of these things that are inflationary will start to die down and will start to come back into line. But there's no question at all that we are experiencing an overall increase in inflation. But you're suggesting that once things come back into a kind of balance where, you know, people see, I hate to use this term, a return to the new normal or an old normal revised. It's like they at least flatten out rather than keep going up. But can we ever say that inflation actually reduces? In other words, so I have a certain rate of inflation going on. It's subject to a rebalance in the economy. And then one day we reach rebalance and the rate of inflation goes goes down. The price index goes down. Is it possible? Yeah, things and there's historic examples of where prices will begin to fall, right? And so, you know, we saw a little bit of a, we saw this with the housing market after the bubble, the 2008 and then the correction, right? So you see prices fall and there's a lot of talk now are we experiencing a new housing bubble because of the demand and all of these circumstances. And again, there's no question that house prices are going up, mortgage rates, costs for those kinds of things are going up. But the question then is, is there something unusual that can be addressed in the short term? Where things get into, you know, what becomes hyper inflation or extreme deflation is where the ability of either market factors or government intervention to control it are no longer effective and it's just, it's just feeding on itself and it's just a runaway thing. That's where a psychological shift has taken place in the public and they're just operating off different rules and different instincts at that point. So there's still a lot of things that are being solved in the short term by just logistical concerns figuring out supplying, you know, ports are expanding capacity. Ships are finding other, you know, other ways into harbors. People are finding other ways to get goods and services. Companies are offering other benefits as opposed to simply raising wages. There's just a number of different things that the market is doing to respond and that's the strength of the system is that there's opportunities for the market to respond first to these increases before we are dependent simply on government intervention in order to control something like inflation. So in the consumer market, it seems to me there's a kind of tension and that is that people feel, you know, we're reopening now, maybe they saved some money, actually saved some money during the, you know, the lockdown, the shut-in of COVID. So now they're coming out. They're going out to the restaurants. They're going out to the stores. They're buying stuff because they have money saved up and they feel a wealth effect, if you will. And when everybody feels a wealth effect at the same moment in time and you have a stable supply or a continuing supply without a, you know, account availing increase, then you have more people seeking more goods and then you have inflation. And so that's one side of the tension. The other side is whatever we can do to ameliorate that, to balance that, to get the two sides of that tension to work well. So you're saying we're in that process right now? Yeah, exactly. And again, we think back just at the beginning of the pandemic, there were all sorts of, you know, companies who could no longer sell their standard goods and services. Well, there was this huge demand for PPP, for personal protective equipment, right? So all of a sudden, you know, there, I mean, there was a story in the Wall Street Journal about a pizza shop in Chicago that was creating face shields because they had the temperature capability in their ovens to do it. Now, obviously, as soon as that guy can go back to selling pizzas, he's going to be selling pizzas and people are probably going to be lining up. It caught my attention because it happened to be a restaurant that my wife and I would go to when we lived in Chicago. So I knew exactly where the story was taking place. And so, you know, and that's, in some ways, that's the beauty and the real strength of the American system is that people are so close to the problem who can make decisions. Small business owners are right there. They can make decisions on the spot and begin to divert resources and manpower and all sorts of things to try to solve these problems. And there's just no way that a centralized system, bank or government or anything else can respond in that kind of feed or creativity. It's one of the reasons why the U.S. system remains one of the most durable there is. So small business and small business owners their ability to pivot and be creative in the moment, take risk is really vital and is honestly our best defense against the historic hyperinflation that we've seen from the past which didn't have that kind of bull work in place in order to head it off. Yeah, that's really, that's a really important point about American capitalism and encouraging, encouraging. It's all about small, medium businesses. That's your market. That's what you specialize in. Yeah. I mean, it's a passion for us. We just, we see these stories again and again and are just amazed at what men and women can do and the ingenuity and the resources and determination they can apply. And I'm sorry, that just doesn't exist in a situation where you're working either in a more collective or even in a large business environment. It's just not the same. And the problems that get solved and the way things are responded to it's really amazing. It is very inspiring. So we're willing to talk about this subject simply because we have that confidence because we work with a good number of these small businesses and we see them solving these problems all the time. So a true acknowledge that the government has to step in. The government has to have sort of guardrails around all of this and that at certain points, certain, you know, indicators, the government needs to do something. And I, and I suggest to you that that's actually more complicated than it used to be. You know, they was used to say that economics is more an art than a science. And it's all a matter of, you know, testing and retesting and seeing if the solutions you come up with work in a given circumstance and sometimes they simply don't. So you have to try something else and government is on a trial and error basis when it comes to, you know, mechanisms to deal with inflation. Am I right about that? Yes. You know, there, you know, one way to think about it and this is somewhat pejorative. The government can certainly make it worse. And we're, you know, it's easy to throw stones, right? It's in Washington's direction or even in the state of the state in local directions, but unfortunately, the kind of tools they have can make it worse. The fact is, yes, with what's happening electronically in the markets with the way that things are being managed, you know, it does the speed of the electronic economy has pushed these things forward. And there are times where you would have you could rely on a window of time in order to kind of assess and gather information and make a decision. And now there are things in place that just start to happen and you really don't have control over that. So one thing begets the other thing and you have a chain reaction of economic events. Yeah, I mean, we've seen this crazy bidding up of stocks, right? Simply because it seems to become a fad, you know, the impact of things like these trading apps like Robinhood and others. And and that's, I mean, that's real money. There are people whose retirements and livelihoods are invested in those markets. And now you have people treating it like it's a game and and treating it like they would a high state poker game in Las Vegas or online, right? So there's clearly problems there and the government is the one that it needs to solve that. They've created the context where that can happen. They're they're accountable to protect the system that we have in place. And so they need to identify that and isolate those things out. We're the opinion that, you know, it's best left to either business owners or the more local the government the possible if it can be decided at a municipal or county level let them figure it out only get the states involved certainly only get the federal government involved if there's a clear breakdown before that simply because those people are closer to the problem and can take regional considerations into account. There is so many considerations here. We haven't even touched the political side of this thing which may not always be rational. But let me let me go forward. Let me go further and ask you this the dark side question. Okay, hyperinflation is worse than inflation. Hyperinflation can come from you know an exacerbation of the various factors we've been talking about and maybe surprise factors factors like the government spending too much the government not putting guardrails on the capital entrepreneurial economy may not be quick enough in a given circumstance may have external geopolitical influences that may screw up the economy. You may have a a kind of lack of confidence and people feel they they have to spend whatever the market will bear and sellers will you know charge whatever the market will bear and so you know you could have a hyperinflation in those circumstances. So question worse case analysis scary. We do have hyperinflation a la Germany or Argentina. What happens? What happens to the country? What happens to the average people? Well it you know it would be devastating and we we can think just in recent memory of the you know that the disparities of income that showed up through covid and the way that those different resources were handled and the opportunities people had but I'll tell you one thing because of my you know part of my discipline is in the finance field part of my discipline is in the culture in the sociology field that the resilience of community I think really proved its value and people that are rooted in a relational community and this is true for businesses or individuals but people that had strong strong relational connections going into this did well and then often cases came out better because of that and so I think you know even something like hyperinflation where there's you know there's so many scenarios we could run out and come to so many different conclusions but the fact of the matter is we are still people and inflation is is contributed to by psychological factors there's very real economic factors that drive it as well but if if we have strong support and strong community resources around us our ability to to survive and to solve these problems to find ways to help others just goes up exponentially and so we must never forget the fact that we are human beings and we are connected to other human beings that is the most vital and important part about us and so you know it's it's right to resist if if things the government is doing seem to be encroaching on that that's that's the right place to resist but at the same time we have to always accept to build those relationships to invest in those communities because ultimately these other things are just the the creation of our civilization over time and what ultimately will survive will be our community and our relationships with each other yeah but commitment to each other sure so let me ask you this where is the press to fit in all of this might give you a country for example that's in a state of panic you know imagining wheel barrels of money imagining the you know the the devaluation of the dollar to the point where it's you need 10,000 of them to buy a loaf of bread how does how does the press play in all of that you you alluded to that a moment ago and I think if we we want to get on the same page and have the level of confidence and connection togetherness if you will community the press plays a role in all of that and the press can exacerbate panic or they can alleviate panic what should the press do in a in a state where we are worried seriously worried about hyperinflation what should the press do now about this yeah yeah you know that's a difficult question I mean there are many in the media that are doing good work on this and representing it that the difficulty is as a public we bear some responsibility because these are these are complicated issues and they can't be boiled down to a sound bite and yet that's so often what we're satisfied with is so often what we're looking for consumers so you know clearly there it takes more work but there there are you know publications print publications primarily that are still dealing with these hard issues and are worth the time to read them and to gain a broader perspective sometimes we just have to filter it's not helpful to know everything because I have decisions and situations that I need to focus on that are happening right in front of me and so you know the press can always you know they they have to balance that responsibility and they're doing that and in a difficult and a challenging time as well for them with their business model being upended and all kinds of other things taking a place of that with social media and other forms of communication so that's you know that those are complicated questions as well we also as consumers of that information have a responsibility to be thorough in our research to read broadly to to talk to people that disagree with us and to reason some of those things out those things take place in a community and they really don't exist outside of a community so there's certainly responsibility to be shared there between both the press and the audience to help manage these things in the more constructive way well this is sort of like market the marketplace we have to see it as the same process as the economic marketplace hopefully the right ideas will come out if people actively participate in the market well one of the thing is this last night one of our brain trust Zoom meetings on a given Sunday night we talked about this we talked about you Gary we talked about hyperinflation and I said well you know what how much should we'd be worried about this and my my my brain trust partner said not to worry about it because if there is an inflation a lot of people benefit by the inflation they they are going to make more dollars their homes are going to be worth more they may have to pay more for goods and services but there there are you know balance points where although they have to pay more they have more so inflation hits both sides of the what equality consumer the consumer balance and I said to him wait a minute if I'm retiring then I I don't make any more money in an inflation I my dollar becomes less valuable and there are a lot of people in this country just like that where do you come out on this should I be worried should I not be worried does it does it satisfy itself by raising all all boats or the some people left stranded yeah clearly some people get left stranded some people benefit you know again we've just we've gone through this very compressed economic event with COVID and one of the one of the clear things that came out of it was was people that at a certain education and income level will get much better and people below that level did worse and so where we used to think of a you know of a kind of a line of economic growth we now have this split line that looks more like a K and if you're below doing worse if you're above a certain point you're doing better that speaks to our humanity right can we look at other human beings who are worse off because of these events and say well I got mine so figure it out if we're if we really value community if we really value things that go beyond simply what's in our bank account and our own personal sense of security we'll take those things literally as well and and yet I would argue that these for those citizens or organizations to respond to those needs rather than the government intervening and saying well we are now going to tax and therefore redistribute because it just it just doesn't work and the the loss and the waste in that process is just too great to be worthwhile so again it's you know that this gets into a conversation about values about what we believe you know what's important what we still share as communities as a nation but there's still a great deal that is functioning well in that place and generosity has been up substantially through this period of time there have been many people I know both personally and I know through nonprofits and other organizations we deal with who have had substantial gifts given to them because people have said I've got more than I need and you are in a better position to use this than I am so take this money and put it where it needs to be used and we've seen that happen internationally we've seen that happen in local communities and across the country and so there's a lot to be encouraged about that doesn't often make the news right that's that's not the kinds of well true well true people want to hear about but that's happening and that is addressing the problem in tangible ways that's encouraging we need more of that I mean we need we need that globally you know we have to share and we have to be mindful of our brothers you know I am my brother's keeper in a larger sense so one last question and that is this you guys in your materials MLA companies talk about you know things you can do and you means the individual consumer wage earner would have you as well as small and medium sized companies in order to you know protect yourself against the possibility of increased inflation hyperinflation one of them I remember is the notion of dealing with cash reserves but you had three or four major categories and can you take a moment and tell us what they are and where and what they mean to us in terms of protecting ourselves from the possibility yeah yeah it's you know it's one thing to just have a list of numbers on a page it's another thing to understand what those numbers mean and where they come from and and cash reserve doesn't just mean what's the number in my bank account it means do I understand where and how money comes in to my company and do I understand how it leaves my company because it's that money that's moving through which is a microcosm of the economy itself and so understanding that having the right structures in place to do that and then the right reporting mechanisms out of that so that over time you learn oh this is what it means it's it's the difference between simply seeing a balance on your IRA and seeing the report that says well here's the investments here's how they perform here's the diversification of your portfolio it's a similar process and and so we really not only specialize but like I said we're very passionate about partnering with business owners to help them answer those questions and to help them develop those skills even teaching them those skills where necessary so that they can understand their business in that broader contact and therefore they're much better positioned to make those decisions than to take those risks and again we're just constantly amazed at at the generosity that that these men and women display with what they have they really consider of themselves stewards they see themselves stewards to a community of people to a supply chain that includes vendors and customers on the other side and then they feel a responsibility for that and the best of human of humanity comes out in those situations when they're given good information and the freedom to make those decisions Not good on all that Gary thank you so much for joining us this morning Gary Wilkins of MLA companies thank you so much maybe we can discuss this again I hope we don't have to discuss it in extremis I hope so too but it'd be great to talk again Jay Thank you very much Aloha