Jun 24, 2021 4 min read

We study history to learn about events that have happened in the past and hopefully avoid mistakes and be better prepared for the future. There is an old saying that history repeats itself. While sometimes this is true, sometimes it helps us to be ready to minimize possible disasters.

The last time the world faced a major health pandemic was over 100 years ago in 1918, when the Spanish Flu terrorized mankind. It shut down many businesses, activities and killed many people all over the world. Then, as now, medical science was able to eventually overcome the virus and regain some sense of normalcy.

Once people felt safe, we experienced the Roaring Twenties. People celebrated the end of the pandemic by going out and celebrating, taking vacations, visiting clubs and restaurants. They were able to go back to their jobs and resume some sense of normalcy. The economy boomed. It looked as though the enthusiasm could go on forever.

Then, only a couple of years later, we hit 1929 and entered the Great Depression. The stock market crashed like never before. Many people lost their jobs, homes and savings. It was probably the most difficult economic time the country ever faced. It took a lot of time and suffering to survive.

Today, we are coming out of a pandemic. Although we are not completely out of the woods, it seems that we can see the light at the end of the tunnel. Restaurants are packed. More people are flying since the crisis began. Vacations are scheduled and professional sports are filling their stadiums. The stock market is near all-time highs. Businesses cannot find enough people to hire.

Yet with all of this optimism, there are many storm clouds on the horizon. Inflation is coming back at rates not seen since the 1970s. We have been living in an artificial world for the last decade and a half. Interest rates have been kept artificially low during this time. This has made the stock market go through the roof. If you do not think that low rates are the No. 1 reason for unbelievable market growth, look at what happened last week. The federal reserve acknowledged that inflation was higher than its targeted rate. One or two members said they might have to raise rates in 2022 instead of 2023. This was enough to trigger a sell-off.

The truth is rates are going to have to start rising much sooner – possibly even this year. This inflation is not temporary. Maybe prices will go down a little, but do you think the two-by-four that you are now paying $6 for is ever going back to $2? Wages are going up, which is a continuing cost. As new environmental requirements go into place, there is a continuing higher cost. Taxes must go up to make a dent in government spending. Used car prices are up 30%. In 1929, the government, companies and individuals were not in debt the way they are today. This debt amplifies crashes.

To have some perspective, when you hear that the government wants to spend a billion dollars, if you stacked $1 bills on top of each other, the stack would extend upward 68 miles. To equal a trillion dollars, the stack would extend well into space to the height of 67,866 miles! Let’s hope the Great Depression does not repeat itself. Are you prepared?

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.