HERE'S A REPOST OF THE 3d POSTING I MADE TO THIS BOARD BACK IN 1999!
FYI
IS INFLATION INEVITABLE?
Is a return of inflation, or worse stagflation,
inevitable?
I say yes!
Here's why:
Contrary to popular oninion, our economy has been experiencing a
violent run-away inflation. The problem is that it has been
confined almost entirely to the stock market.
Furthermore,the Federal Reserve has been furiously printing huge
amounts of money to keep this financial asset inflation
going.
But, as the financial economy has soared like a
rocket, the real economy, best exemplified by commodity
prices, has sunk like a stone.
So, here's the problem:
At some point, the corporate economy is going to reach asaturation
point of too much capacity and too little pricing
power, resulting in declining profits.
Then the flow of money out of ridiculously over-priced defensive,
"nifty-fifty" stocks and into ridiculously under-priced
commodities will begin.
Amazingly, the public will perceivethis shift as a rise in prices in
the real economy at the very moment when business activity seems to be
slowing down, in other words, stagflation.
Then, the bond market viglilantes will punish this rise in real
economy prices by raising interest rates making the stock
market's decline even worse.
This explains why, forexample, the stock market mania in the 1960's
gave way to the stagflation decade of the 1970's.
Commodities,like oil, effectively soak up the money that was
originally printed to support the stock market bubble.
In effect, stagflation is how we "do" depressions in the
post gold standard world of paper money economies.
