The risk of inflation, who do you trust?

I have no doubt that as we keep pushing more and more money into the system to keep the ship afloat that it may prove to be inflationary, but how much and when? We already saw the hawks point towards rising oil and gold prices as evidence but then those commodities have come back from their highs – perhaps there is a degree of speculation at play, or the fundamentals changed as prices rose, it is easy to suppose, difficult to factually nail down.

The idea that inflation is always and everywhere a monetary phenomena is a famous Milton Friedman quote, but there is a difference at play now versus the way things worked in the past in terms of how the timing might work.

When money was ‘real’ (backed by precious metals), debasement had a very immediate effect, and once it became apparent people would take money out of circulation and have it re-minted elsewhere; that is why ‘sterling silver’ has that name, because British sterling was considered to be of a high quality, the …

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Inflation or Deflation? 1923 or 1932? What will it be?

I have been a proponent of inflation being the greater risk to society than deflation for quite some time, so all said, I am in the ‘inflation is the true risk’ camp. Interestingly, it is starting to become the topic of the day now and apart from my feelings that a fixed rate now is a good idea, there are two debates from the major money channels below, one is from Bloomberg the other CNBC. They are well worth watching.

The first clip from Bloomberg has Tom Keene, Economics editor and Alan Blinder (formerly of the Fed)  of Princeton University.

The next clip is from CNBC on the same topic, featuring Larry Kudlow, Michael Darda, MKM Partners; Joe Lavorgna, Deutsche Bank and CNBC’s Sharon Epperson.

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Some quick thoughts on inflation.

There are a few things that concern me regarding inflation, I have listed them as bullet points.

1. Paul Volcker said that he is concerned with the Fed and Treasury seeking ‘the amount of inflation conducive to recovery’. 2. Bank of England are engaged in Quantitative Easing (fancy talk for ‘Printing Money’), they had a failed bond this week as well which means they will (the UK) have to reassess their par on bond offerings. That means paying more to get the money, to service these loans they will likely devalue Sterling further. This matched with increased money supply will bring inflation to the UK. 3. Increased inflation risk is being priced into bonds. 4. Investment houses are increasingly driving people towards resources as a hedge against inflation because inflation doesn’t reward savers, it rewards those holding assets.

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