Executive Summary

• Taking Advantage of Subsidies
• The Importance of Adding New Income Streams
• Income-Producing Assets
• Hedges, Cost-Controls & Other Strategies

If you have not yet read Part 1: Drowning In The Money River, available free to all readers, please click here to read it first.

In Part 1, we compared official rates of inflation with hard data from the real world, and found that it’s not just the cost of burritos that has soared over 100% while inflation has supposedly been trundling along at 1% or 2% per year. The real killer is the soaring cost of big-ticket essentials such as rent, higher education and healthcare.

So what can we do about it? There are only a few strategies that can make a real difference: either qualify for subsidies (i.e. lower household income), own assets and income streams that keep up with real-world inflation, or radically reduce the cost structure of big-ticket household expenses.

Assets & Income Streams

One strategy to avoid being crushed by real-world inflation is to earn enough extra income to keep up with higher costs. This is problematic in an economy in which wages/salaries are declining as a share of the gross domestic product (GDP).

This is a long-term secular trend that is affecting not just middle-income workers but the highly educated technocrat/managerial class. This reality suggests that trying to earn more income via wages/salaries is akin to pushing sand uphill: it is possible, but it’s running up against powerful secular trends.

The alternative strategy is to seek assets and income streams that might increase purchasing more than wages/salaries.

The data speak volumes about the difference between wealthy households and middle-class households: the middle-class households’ primary asset is the family home, while the wealthy households’ primary asset is business equity: ownership of an enterprise or shares in enterprises.

Developing a profitable enterprise is easier said than done (it helps to inherit a family business), and there is no guarantee a business that’s successful today will still be successful next year.

Nonetheless, it’s striking that the middle class is heavily indebted, house-rich and business-equity poor, while the top 1% has little debt and is business equity-rich and relatively house-poor.

This is not to say it’s a poor investment to own a home, but it does suggest that you can beat the erosion of inflation by...

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