Wednesday, November 17, 2010

The Inflation Watch (yawn)...

Nope - all quiet on the monetary front.


More seriously, it is important to remember that there is a very real penalty to betting on inflation year after year. "Just-you-waiters" may place themselves in costly positions by ignoring reality to hold onto their now several-years-old hysterical warnings.

For example, it is really hard to imagine interest rates being forced up by wage pressure with 9+% unemployment. Tell me when that is going to drop and then I'll believe.

The bad news is the power of money to earn a return passively.  Sooner or later, investors will have to take a chance.


Anonymous said...

John, I think you continually have the wrong take on this. The world economy is now driven by consumers outside of the U.S. With our expansionary monetary policy and languid economy, our currency will devalue leading to rather bad stagflation. Also any savvy investor knows its better to take a small loss (money under the matress) than a big one (lending to your neighbor who has no equity, no job, and no prospect of ever paying you back) while waiting for a better opportunity to come along such as investing in farmland or equities in growing economies. The fact that you think farmland is a good investment shows that you already recognize asset inflation. Consumer good inflation will follow instead of lead this time.

John Phipps said...


You make perfect sense save for one thing: people have been warning of inflation (CPI/PCE) for, well, years now. I can go back to posts from 2006 on this.

And there has been very, very little consumer inflation all that time by historical standards. My rule is after 4 years, you're wrong. Otherwise it's like predicting an earthquake "sometime" - you're eventually right, but the prediction is not very helpful.

I agree with asset inflation (even bubbles) but "inflation" is usually associated with consumer prices unless specified otherwise.

We remain in real danger of deflation IMHO, and still will not let go of outlooks that have failed for literally years now, preferring to construct logical arguments instead of using empirical facts.

The fact that you state I am "continually wrong" is hard to understand given the figures for the last several years. I say my predictions of low inflation look pretty solid.

I'll keep revisiting this so inflation hawks can eventually get their "I told you so", but I bet I've retired before that happens.