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What Inflation? This Inflation!


Those arguing that inflation is not a problem are either disingenuous, blind or cheerleading for Washington. Inflation  is not happening in wages, nor is it happening in many products where the misallocation of capital has caused oversupply (real estate being just one example).  It is happening in financial assets and it is happening in commodities. All of the worldwide stimulus and money expansion has to go somewhere besides excess bank reserves and it is, slowly. At some point, the excess bank reserves will be used and inflation will roar.

Inflation starts slowly and doesn’t affect all assets equally. No bell goes off to signal its arrival. It is stealthy in the beginning, usually showing up in a few sectors of the economy. Finally it bursts out and everyone recognizes it. Is it for sure that we will have inflation? Nothing is certain. We could have a complete collapse of our economy that would make it hard (but not impossible) for inflation to occur. Short of that, I believe it is here and probably will break into full view in the next 12 months.

In an article entitled Commodities’ Multi-Week Highs: If This Isn’t Inflationary, We’re Missing Something, Randy Frederick, Director of Trading and Derivatives at Charles Scwab reasons that

There is a new trend developing in world financial markets right now…..and that appears to be a breakdown in the faith of governments. The ultimate price of years of excess is about to be paid – inflation.

Look at Mr. Frederick’s charts. Look at gold, hitting another high today.

2 thoughts on “What Inflation? This Inflation!”

  1. I would tend to agree with you, although do not trust the CPI numbers. It is difficult/impossible to develop and index that measures price change under the best of conditions. If the attempt becomes politicized, then you have bias on top of error. See John Williams at for his take on CPI, GDP, etc.

    Regarding your point about stock market performance, a drop in the Dow seems likely, although “markets can stay irrational longer than you can say solvent” (paraphrasing J.M. Keynes). In a hyperinflation, markets tend to rise. I believe Zimbabwe market performance vastly exceeded the rest of the world in their hyperinflation. However, I also do not believe it kept pace with inflation.

  2. My friend is active in the stock market, and he told me the other day, “The period of bull market rally has been unusually long and strong.” He didn’t apply macroeconomic theory to his observation (and, he is not an Austrian), but to me that is a clear signal that the stock market’s bull rally is entirely the work of monetary inflation (especially when it comes to the rise in the price of bonds [such as t-bills] and then the rise in commodities). Although, change in CPI was negative and now is only increasing marginally. Once CPI begins to rise more dramatically, there will probably be a drop off in the rise in price of stocks.

    To be fair, I am not entirely read on the effect of easy credit on the stock market, other than psychological effects (and the effects of low interest rates versus high interest rates).

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