Friday, 28 June 2013

What is inflation?

Inflation is a generalised increase in prices and the supply of money.

Central bankers actually like inflation provided it does not get out of hand. Two percent is generally considered good.

The Bank of England (generally) has minimum as well as maximum inflation targets. If inflation falls to zero there trouble. There is a great deal of political dishonesty surrounding the subject because the establishment like to pretend inflation comes from somewhere else. They will either blame foreigners (for charging the market rate for imported products) or workers (also for charging the going rate). In fact both of these factors are simply symptoms of the expansion of the money supply.

A photo posted by Richard Ford (@richard.ford) on

Oxford. John Maynard Keynes- who some think of as the king of inflation- walked these streets.
Put simply, inflation occurs when there is more money than goods. Money cannot just slosh around uselessly with nothing to do so it manifests itself as higher prices.

Wage growth is caused by employers with the money to pay them and a burning need for employees.

Moderate inflation helps an economy grow and it is stoked by the pleasant process of creating credit out of thin air.

Inflation is generated by the state. We would never guess this from the news which treats it as a baffling and random event that just occurs by itself. Not so.

Unfortunately this ignorance opens a window for the state to generate more and more inflation for its own ends. Hyperinflation is probably the only way to clear the national debt in a democracy. This is one reason gold has been increasing in value- gold is a sort of insurance policy against inflation.

What should we do to protect ourselves against inflation? Buy goods that will inflate in value. This may be property, food or anything else that is tangible and productive. Do not hold cash or most other types of investment. Land generally does OK, as do most commodities- especially gold. Art is also good if you understand the market.

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