Why Inflation Is Likely Here To Stay: Part 2 [Pete Bog]

Inflation is always and everywhere a monetary phenomenon.

Milton Friedman isn’t running the show anymore

Milton Friedman was a Nobel Prize winner in Economics and a key proponent of an economic school of thought known as Monetary Theory, which has proven correct over time. Joe Biden is a senescent, corrupt politician currently masquerading as the President of the United States. Milton’s cold dead hand is currently bitch slapping Joe and his handlers’ theories about economic policy all over the double wide.

Many a 29 year old can recall hearing of runaway inflation destroying the economies of Zimbabwe and Venezuela. Stories of a single bill worth a million rand or pesos were everywhere. Your junk drawer may hold some ridiculous currency someone sent you as a gag because a million somethings was worth three cents. Turkey is in the process of destroying it’s currency right now.

Guess who else is destroying their currency? Inflation is back in the news in the United States. Prices are rising for seemingly everything. People are starting to notice. MATH WARNING! That Thing you like that was $20 a year ago? Now it is more like $22 here or in town. Assuming nothing changed in the supply of that Thing or in the demand for that Thing, the two dollar increase is inflation. Ten percent inflation. With 10% inflation your dollar today will only buy 90% of what it bought a year ago. Carry that 10 percent forward for three years, and don’t forget the miracle of compounding like credit card debt. In four years you have lost nearly half of your purchasing power.

That is what inflation does to your savings. When your money is going down in value faster than Kamala on a job opportunity, what should you do? That’s right, you should buy stuff that will not lose value. When inflation increases people have an incentive to spend more sooner to buy real goods. What should the person you paid for the Thing do with those dollars? Try to get rid of them by spending them as well. You may have heard the definition of inflation is too much money chasing not enough goods. When this realization sets in no one wants to hold the currency and they frantically try to buy anything they can before the money they hold goes further down in value. This is called an inflationary spiral. When this has happened in other countries the most popular purchase has frequently been the good old United States Dollar.

Most recent estimates of inflation say it is currently running about 6 to 7% a year. Lots of people debate that number either way, but no one really disputes that inflation is higher today than last year, although nowhere near the “inflationary spiral” level. However, as the expectation of further increases become established the willingness to hold cash or invest in long term opportunities diminishes. I can’t really see any negative consequence from that. Can you?

posted by Open Blogger at 01:00 PM

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