More About Inflation

  • One of the best ways to predict inflation is to look at workforce growth (2.5 year lag)
    • New works start to spend and require lots of goods, services, money, etc - they fuel the economy
  • Before central banks, inflation was relatively mild
    • House Prices in the US only rose 12% in the 19th century 
    • House Prices in the US only rose 50% from 1800 to 1913 (When US Central Bank Formed)
    • Previously most countries monetary policy operated on  the Gold Standad
  • Inflation is hidden tax on those who accumulate assets:  savers, retirees, annuitants and insurance policy holders

Inflation Triggers

  • Monetarists and Austrain Economists believe that Central Bank money printing (increasing money supply) causes inflatino
  • Population Growth (especially working age) - more demand for currency in the economy
    • Working age population consume a lot 
    • Having kids also requires significant consumption
    • Non-Working age are huge consumers (without any production)
  • Some believe that Inflation is now always driven by the money supply:

Inflation & Specialization = Good Thing (Harry Dent)

  • Specialization of Labor = More Transactions / Outsourcing = More Need for $ = Inflation
    •     We have to pay other people more money to do something than we could do it for ourselves
  • Specialization of Labor = Better Efficiency = Better Lifestyles = Good
  • Therefore:  Inflation = Good
  • Natural Inflation is a great economic indicator and sign of progress
  • However, unnatural inflation can be bad:
    • Massive Central Bank QE & Liquidly injections are like a drug
  • Compared to someone living remotely by themselves.  They do everything themself and have non need for currency:
  • Evidence:  Although there has been massive "inflation" in the US since 1900, inflation-adjusted wages and living standards have gone up far faster

Inflation According to Dr. Lacy Hunt