Inflation/Deflation

Governments make fruitless effort to retain control over deteriorating real growth and rising unemployment by having their central banks print more and more money, risking a hyperinflationary depression (stagflation at best). The only respite for many investors is gold.

The world seems to be entering a new period of stagflation similar to the 1970s - high inflation and low GDP growth - but expect this to be continually denied by mainstream news sources. Words: 633

Harvard Professor/Economic Historian Niall Ferguson wrote recently that he is of the opinion that, while all the fiscal and monetary government stimuli undertaken by many of the governments of the world's developed countries since 2007 may have averted a second Great Depression, they will, most likely, still experience a "slight" depression. Campbell reviews the rationale behind Ferguson's position and then presents his view that, as he sees it, most developed countries will face, instead, "a form of" Stagflation where the prices of non-durable goods (food, energy, and basic consumables) inflate, but the price of durable goods (long-term assets such as houses, cars, refrigerators, etc.) deflate. Campbell's commentary makes for a very thought-provoking read. Words: 922

Paul Volcker has written an Op-Ed for The New York Times entitled “A Little Inflation Can Be a Dangerous Thing,” in which he argues – and we really won’t dispute it – that allowing inflation above institutionally accepted levels of say, 2 percent, can indeed be a slippery slope, and a very bad thing, but times have changed since Mr. Volcker decided that he would do whatever it took to slay inflation. [These days a little inflation might be a very good thing. Let me explain.] Words: 1636

The Fed justified the last round of quantitative easing "to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate". In effect, the Fed is trying to increase inflation, operating at the macro level but what does an increase in inflation mean at the micro level — specifically to your household? [Let's take a look.] Words: 1555

We can make some inferences about how inflation is impacting our personal expenses depending on our relative exposure to the individual components [and any way you look at it inflation is on the rise - so let's take a look at the particulars.] Words: 769

Housing makes up 42% of the Consumer Price Index (CPI) with the rest of it - food, energy, clothing, recreation, education, transportation, toys, cosmetics, etc. - making up the other 58%. [The current] softness of housing prices is artificially suppressing the growth of the CPI inflation rate [but with the coming increase in lumber costs that is about to change. Let me explain] Words: 772

While it is true that the average consumer isn’t (and won’t soon be) spending as much as he used to, it’s not because he’s waiting for bargains. No, it’s because he’s out of credit, he’s unemployed, his house, car, motorcycle, boat, and plasma television have all either been repossessed or foreclosed upon, and his wife just left him. He’s not exactly in the mood for shopping. He’s not waiting for bargains. He’s waiting for a miracle - and I don’t think they sell those at the mall. Words: 1582

Many investors are worried about inflation and, as a result, are considering buying inflation indexed bonds and other inflation protected investment vehicles. They may be setting themselves up for significant losses, however, because of the way the government is now calculating the CPI, and the further changes being proposed. In the opinion of this writer, the CPI calculation appears to be inaccurate and, as a result, such investments may not be appropriate inflation hedges. [Let me explain.] Words: 1533

Inflation is a significant measurement for the economic health of countries around the world but rates are often reported weeks after data is collected. To address this problem, two professors at MIT Sloan School of Management have launched the Billion Prices Project which is the first website to publish daily price indexes and provide real-time inflation estimates around the world. Words: 825