the social scientist.

Evidence That Big Inflation Is Coming

That's about the best discussion I've seen on seekingalpha.

Let's distill - the comments in particular. Inflation is a general increase in the level of prices of things that we consume. Asset price inflation refers to the change in price of productive resources (or non-productive, like collectibles) that last for some time. Residential real estate then is an asset, but it's shelter services are priced as consumption inflation. When Friedman hypothesized that inflation is a monetary phenomenon he was encapsulating a theory, that inflation is the result of an increase in the money supply. He was not redefining inflation. In his argument he of course engaged in modeling, in which we assume that a lot of other influences (causes) do not vary, and so the independent effect (by itself) of an increase in the money supply will produce inflation. That is, if nothing else changes, including no change in the production of goods and services that money buys.

Unfortunately, other things do change, and the changes in the other causal variables are all inter-related. The key variable omitted by the first author is the velocity of money. If the new money just sits locked up and is unavailable to create an increased demand for goods and services, it isn't going to engender inflation (think globally here). I'm with Mish, for the most part. The bad debt has to unravel. There won't be credit expansion until a lot of that debt is simply written off. There won't be economic growth until credit expands again, or people have saved a lot of money, and then dip into those savings. There won't be inflation until you get economic growth. Don't hold your breath waiting for it.

How does that square with stagflation - inflation with no economic growth? It's mostly a question of time lags I expect. Inflation did ease when the recessions of 1974-75, and 1982-83 bottomed. And, during those recessions, there was no destruction of asset values or credit contraction as now.

This is the 1930's, and Japan in the 1990's. Can the government and central banks save the day? Nobody knows, including them, because this experiment hasn't be tried before. Consider that the 1930's was the control group, and now we are the experimental group. So far the experiment isn't going well is it? Who knew that recapitalizing the banks was not going to improve credit availability for the consumer Who would have thought that people would not want to borrow? Actually quite a few.

When inflation returns there will be plenty of forewarning - we will have signs of economic growth, such as new unemployment claims falling. Remember though, that in the past deflation, or lack of inflation, hung around for a long time.

I do own some GLD - it's a trade.