Tuesday 14 September 2010

What inflation? "Them" won't let it happen

Inflation in food and soon, it is reported, in clothing, is owing to factors such as bad harvests, rising energy costs and government export restrictions.

But if you agree with the monetarists that inflation is caused by the expansion of money and credit, then until people and governments have paid-down (or defaulted) enough debt to feel confident about spending again, we are in a deflationary environment and whoever holds money is going to do well.

That said, there is a subset of monetarists who think that somehow, governments will force-feed money into the system to create inflation, or hyperinflation.

While this is technically possible, people like Mike Shedlock counter that the ruling elite will not allow this to happen, since it would destroy their wealth.

It's a rigged game, not Russian roulette. So barring some catastrophic default, we've got to sweat it out through a new Depression era.

Save money.

"Commercial real estate lags residential and residential real estate has not yet bottomed, and indeed may not bottom for years." - Mike Shedlock

"The most important indicator is “credit growth” or lack thereof. Everything else follows... There is no credit growth, and therefore, according to my long-standing theory, there can be no sustainable economic growth unless and until miraculously credit starts growing. However, given current policies in Washington, that seems unlikely at this time." - Bert Dohmen (htp: Karl Denninger)

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James Higham said...

Whoever's doing it or causing it or whatever, it just makes sense to put the funds into safer things, e.g. commodities, to have no credit debt and to live within one's cash means at this time.

Have a speculative portfolio by all means but don't let the domestic and speculative cross over.

The Arthurian said...

Hi, Sackerson. I really like the Bert Dohmen quote and the "credit growth" indicator.

Used to be, credit was for economic growth. Now it's even used to maintain existing levels of spending.

Failure of policymakers to distinguish money from credit?