Inflation Is Coming: All the Trends That Were Deflationary Are Slowly Going in Reverse

But of all potential economic outcomes, the one least anticipated and least priced in, is an uptick in inflation.

By Harris “Kuppy” Kupperman, founder of Praetorian Capital, Adventures in Capitalism:

Investing is all about probabilities. If the perceived odds of an event are high, certain securities will be priced based on those expected probabilities. The corollary is that when an event is perceived as almost impossible, securities do not price in any chance of it occurring. If that event does occur, all sorts of securities need to re-price—often quite rapidly. I like to spend my time pondering what potential events the market completely ignores. Of all potential economic outcomes, the one that is least anticipated and least priced in, is an uptick in inflation.

It is said that generals always fight the last war. In terms of macro-portfolio wars, Japan’s experience with deflation colors all views. This seems odd to me because we have over two millennia of history showing inflation and currency debasements to be universal constants, with one outlier in Japan. The question is if Japan is the new normal or a true outlier?

Academics have studied the causes and effects of inflation ever since emperors and kings fixated on halting its effects. Despite a massive body of work, there is little agreement amongst experts on the causes of inflation. Since I tend to ignore “experts,” let me start by giving you the Kuppy definition of inflation. “Inflation is when too much of a certain currency chases a scarce resource and pushes its price higher when defined in terms of that currency.”

Using that definition, we’ve actually had rather dramatic inflation over the past decade—it just hasn’t shown up yet in the core consumer goods that central bankers are often concerned about.

When a country prints money, no one knows where within the economic ecosystem it will ultimately flow. If a resource is scarce, it tends to experience inflation—when it is artificially scarce, it has even more extreme inflation. Just think of where the money printing has ended up this cycle; bonds (central banks restricted supply by buying them), stocks (PE and buybacks have restricted supply), gateway city residential housing (local municipalities have restricted supply), medical costs (systematic dysfunction has restricted supply), vintage wines (they aren’t being produced anymore), college education (supply restricted again). I can go on, but you get the point.

Meanwhile, traditional inflation stalwarts like food and energy have remained suppressed due to technological advancements, reduced logistical costs and excess liquidity, which has allowed capacity to overshoot and lead to price deflation. To say that we’ve not had inflation over the past decade is wrong, we just haven’t had inflation in places that are key components of the CPI basket.

However, that may be changing. I believe that the number of sectors with restricted supply are starting to expand. Let’s look at labor, which historically has been a primary source of inflation. It’s no secret that US unemployment is at historic lows, laborers now have bargaining power and wages are rapidly increasing—with increases made more extreme by minimum wage laws, healthcare inflation and new mandates in various states. The cost of labor goes into almost every finished good—particularly in a labor-intensive service economy. Politicians on both sides seem willing to pass laws that give labor a bigger share of the pie—what will that do to inflation?

Now think of energy; it’s a crazy world out there and global energy security is no longer guaranteed. Prices have been suppressed for the past few years by excess production due to uneconomic shale—that’s clearly reversing as the funding has been cut off. Where do you think energy prices go if shale growth flat-lines or goes in reverse? What about when key producing regions devolve into chaos? Tanker rates are also expanding—that increases energy prices as well.

Now think about consumer goods; the past few decades were all about increased globalization where manufacturing migrated to the cheapest possible location. Trade wars and regional balkanization upend this trend. Now there ought to be an implicit geopolitical risk premium priced into gross margins on every good. Supply chain disruptions further increase costs. If globalism was deflationary, isn’t the reverse inflationary?

Think about what venture capital has done to costs. Thousands of businesses are losing hundreds of billions a year to gain market share in rather prosaic industries. Think about what Uber has done to transport costs or Chewy has done to the cost of dog food. These are all subsidized by VC firms so they can dump IPOs on unsuspecting retail bag-holders. As these businesses are forced to raise pricing in order to become sustainable, what will that do to consumer inflation? Won’t all sorts of sectors also gain pricing power, now that they don’t have to compete with someone who sells a Dollar for 80 cents hoping to make it up with volume? Isn’t the collapse of the Ponzi Sector bubble inherently inflationary?

What about all the supply restriction as ESG takes its toll on economies? If you can’t get permits to build a new coal mine or oil pipeline, yet demand keeps growing, won’t pricing increase as well?

I can go on and on. All the trends that were deflationary are slowly going in reverse. We haven’t seen the effects of this show up in the data yet, largely because the global economy is rapidly deteriorating, which is putting a brake on the demand side. However, even with the global economy slowing, inflation is starting to tick up in the US. Can the rest of the world be far behind us?

Of course, government policy drives all of this. I think it is obvious that we’ve finally reached the limits of monetary policy. Does the ECB taking rates 10 basis points more negative do anything but accelerate the bankruptcy of the Eurozone banking system? Does it increase consumption or capital expenditures? Of course not. If anything, it just starves the system of capital by taking everyone’s return on capital investment down towards zero and below. Who invests when expected returns are negative?

What the world needs is a big reset of the system where leveraged firms default, solvent firms pick up the pieces and get to earn excess returns due to their past fiscal sobriety. Since we live in a democracy, that won’t happen, instead we will have extreme fiscal stimulus in order to kick the can further down the road.

In October, I spent 15 hours in the Sheremetyevo airport in Moscow (damn connecting flight never showed). It hasn’t seen a dollar of cap-ex in years, but it’s still light years ahead of LaGuardia or LAX. Just wait until corporations learn how much they can make from a never-ending airport renovation project. Now multiply that by hundreds of airports in America that desperately need capital investment. Now add bridges, roads, bullet trains, water infrastructure and our electrical grid. Why are all the lobbyists trying to get us into wars with third world nations? Corporations would make more money fixing our infrastructure and it’s going to be a lot less politically contentious.

If you think deflation is a fact of life, you clearly haven’t paid attention to history. Governments around the world have experienced a unique decade where they ran deficits and printed money without “bad inflation” which upsets voters. They think this is a new normal with no consequences. It isn’t. They’re already panicking with the S&P a few ticks from all-time highs. Soon politicians will go into ludicrous mode with fiscal stimulus.

What will fiscal stimulus do to the equity market? I’m reminded of the 1970s—inflation is no friend to most stocks. What happens to trillions in negative yielding long-dated bonds if inflation ticks up? What happens to bond proxies like global large-cap equity indexes or real estate? What happens to risk-parity funds that are leveraged a few times over expecting bonds and equities to increase over time? What if both legs of the trade drop at the same time?

No one is ready for inflation, but I believe it’s coming. Maybe not today or next week, but there is a powder keg of monetary supply just waiting to be unleashed by governments who think that inflation can never happen again. At first, markets will cheer a bit of inflation—then they’ll panic. The markets often do whatever the fewest people are positioned for. Who’s positioned for inflation? That’s about as contrarian as buying Argentine sovereign debt.

I think the road-map ahead is a market crash, followed by obscene fiscal stimulus. As always, I’m trying to think a few steps ahead here. I’m making a list of beat-down sectors who benefit from this change in government policy. I want to be ready to buy as soon as they get serious about unleashing the stimulus.

You need a crisis that’s severe enough that both political parties can agree on stimulus. We’re not there yet, but we will be. If you thought QE was nutty, wait until you see what drunken sailor mode looks like. Inflation is coming. Be VERY careful if you own assets with duration risk. By Harris Kupperman, founder of Praetorian Capital, Adventures in Capitalism.

The way inflation is measured includes an arcane device that impacts so much. Listen to the podcast, THE WOLF STREET REPORT: What Worries me About “Hedonic Quality Adjustments”

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  189 comments for “Inflation Is Coming: All the Trends That Were Deflationary Are Slowly Going in Reverse

  1. Ole C G Olesen says:

    Inflation has been there all the Time !
    Total Cost of Living for normal people has massively increased
    ( including Taxation and other hidden State extraction of Income )
    While Wages have STAGNATED
    Any NORMAL CEREBRATED person knows this.
    .. all over the socalled developed World
    and is based on highly massaged statistics.
    Only People living on the Moon ..are not aware of this

    • Tom says:

      Well said. The great government lie that there is low to no inflation at the moment. They should try living in the real world. Maybe it will get worse!

      • nhz says:

        Most politicians and high level government bureaucrats live in a parallel universe. I have heard so many stories that prove that these people (including or maybe even especially economists, Finance ministers etc.) are totally clueless about the real cost of living for ordinary people

    • Steve says:

      Your exactly right

    • Iamafan says:

      Ok so there are two kinds of people:
      1.) Those who will play the game against inflation.
      2.) Those who simply can’t.

      • David Hall says:

        My HOA fees went up. My cable bill went up. Batteries for my TV remote are more expensive. The price of food is rising. The price of gas is up. A checkup with the doctor with multiple tests costs over $900. It used to cost $150 to get a tooth pulled. Now it is about $500. Fancy cataract surgery and lens implants costs over $12,000. Open heart bypass surgery might cost over $250,000 in some places. Who is worried about deflation?

  2. Lt says:

    Everything Kuppy describes here rings true to me.

    Our food, gas, clothing etc expenses are low for my household. I’ve been discussing with my husband how the cost of food and gas are really quite inexpensive…. you may experience otherwise, but I guarantee that I can feed my husband and I easily on $50 / week at the grocery store and we eat well. We may dine out twice a month. And gas is cheap, now for about $2/gal with my shopping discount. My property taxes and utilities are reasonable.

    Thank goodness because healthcare, insurance and college tuition for two are killing me.

    • alex in San Jose AKA Digital Detroit says:

      And if you lived in the EU or well, any other OECD country, health care/health insurance and college expenses would be non-issues.

      • unit472 says:

        Not if you factor in taxes. In the US the Federal government takes about 22% of GDP. In France its over 50% one big reason its workers are striking, rioting and manning barricades as I type. After French taxes workers have nothing left but free tuition and healthcare. But what if you aren’t sick or going to school?

        • David Calder says:

          The French are on strike over proposed pension “reform” which means cuts to their pensions. They are not on strike because of their income tax rate.

        • timbers says:

          Taxes are irrelevant to healthcare costs because adopting Frances healthcare policies in the US. would REDUCE Federal, state, and local government spending by about 40%.

          If France has high taxes it is not because of it’s healthcare polices.

          On the contrary, if France implement IS healthcare policies, it probably have to raise it’s taxes quite substantially due to much higher costs going rich gigantic corporations instead of healthcare going to people.

        • nhz says:

          … and when the US would adopt the French pension system the federal debt would explode even more; the French pension system is impossible to maintain, but leave it to the French to demand the impossible. Not that the other EU or US pension systems are sustainable in the long run, but the French one is more than unrealistic and for a change I agree with Macron that something has to be done about it.

          Also the difference in total taxes between EU and US isn’t as big as suggested here. e.g. in Netherlands and some other EU countries we have lower healthcare insurance cost (EUR 100-120 per month) but it isn’t a real insurance, it’s a tax: by far the biggest chunk of healthcare budget comes form general taxes. In the US the general tax level is lower, but if you rack up significant healthcare cost you are much worse off compared to Europe.

      • marion says:

        And you clearly show that you never had to use their health care system. If you did you would recoil in horror.
        Try the ER of any french city. Try high end surgery or even a simple coronarography. A disaster.
        I trained at the highest level of french healthcare and I can tell you as an insider that, unless you know specifically who’s handling your care you’re better off coming to the States.
        Apples and Oranges.
        Same goes for Canada, England and EU.

        • james wordsworth says:

          I don’t think you know what you are talking about. I’ve lots of experience with the Canadian health care system and i can say the nicest part is not having to worry about what I can or can not afford or whether I can afford to see a doc, or cal an ambulance. The care we have has has been top notch and although there are some procedures that have wait lists, if it is serious, you will be looked after. In the US, health care is a leading cause of bankruptcy and for three years in a row, life expectancy is declining. In fact in the US life expectancy is embarrassing, especially when you consider the US spends about twice or more than any other country per capita on health care. The US system sucks for the majority of its population.

    • Albieok says:


    • zagonostra says:

      Your absolutely correct. For me, Food and fuel for the car are negligible expenses. It is healthcare cost, real estate taxes, and helping children with their student loans that puts the hurt on, these pressures, especially healthcare insurance are what force me to continue working where otherwise I would retire.

      But I guess that’s the way the system was designed, you wouldn’t want people to have enough leisure to be politically engaged would ya?

      • timbers says:

        But as Wold has noted, according to the Fed our skyrocketing healthcare/insurance costs are not inflation – its GDP growth!

        Every time your healthcare/insurance costs go up up up, you’re getting wealthier and living better and the economy is expanding and NOT experiencing inflation.

    • Juan Reynoso says:

      For all the people that think that the cost of living is going up; just ask people that worked to support a family in1955 and what cost to live well. Corporate greed and government corruption has demise the living standard of the average American worker. Today most Americans are economic slaves, and they are happy because they don’t know what its to be economic free and have the time to enjoy life and care for their family and enjoy life.

    • wkevinw says:

      Lt- right. The main items that have been inflating are college tuition, health care, and shelter. “(Internationally) tradeable goods (electronics, some vehicles, clothing, furniture) have mostly cost less in terms of earning power of the avg American. Gasoline has gone up a bit in recent decades, but natural gas and its derivatives have gone down. Foods/groceries are less expensive in terms of average salary too (vs. ~ 50 years ago).

      Health care and shelter are really hurting most people, and anybody having to deal with college costs are really feeling pain too.

      • Harrold says:

        With a shrinking pool of children, how long can colleges keep inflating prices?

        • nhz says:

          before you know prices per student will have to go up even more because the number of students is going down, and there are all those fixed costs to keep the education system humming along ;)

        • Nat says:

          As long as student loans exist in a form that favors and encourages lenders to keep making them and collages to keep raising rates to give these lenders their “guaranteed income” like they do now, your answer is: practically forever.

          Even the extremely simple step of allowing bankruptcy to clear student loan debt would have a massive impact on longer-term US college costs, because it suddenly wouldn’t be “a sure thing” investment to encourage naive 18 year olds to take out as much money as is conceivably possible regardless of their degree, or carrier and life choices.

        • char says:

          College is in effect a Felben good so higher prices are a given.

          Problem with college is that for students it is a status good to buy your range in the pick order. The real consumer of the education (government/industry) should pay for it to create a drive to efficiency.

    • JMiller says:


      I concur. The fact is for the average person in the U.S. the vast majority of things like energy, homes prices, rents, autos, electronics, college tuition, nursing home cost, apparel, and even most food items have not gone up all that much. All of these things nationwide have gone up about 3% to 4% on average per year over the last 10 years. However there are a minority of people who have experienced higher inflation than most of us. Here is just a sample of how the inflation rate for most things are low.

      Gasoline prices:

      National Average Rent Drops For First Time In 2 Years

      Thanksgiving Dinner Cost Rises 1st Time in 4 Years (by only 1 penny)

      A Decade of Grocery Prices for 30 Common Items

      Average Cost Of College,dpr_1.0,f_auto,h_1600,q_auto,w_1600/v1/AverageCostofCollegeHist_azhzrx

      What Does A Nursing Home Cost?

      There are only a few things that I found have gone up significantly over the past 5 or 10 years nationwide. The main one is healthcare. Fortunately about 80% of the people get insurance through an employer or from the government so much of their healthcare cost is paid for. The other 20% either buy healthcare insurance on their own or go without any. Needless to say those people are paying a lot more out of pocket for their healthcare than the average person.

  3. John Taylor says:

    Interesting article. Fiscal stimulus will certainly be a major shift once it happens. It’s a tough environment to gauge though.

    Everyone knows stocks and bonds are overpriced, but how can they reverse substantially when CB balance sheets expand to finance these asset purchases?

    On the other hand if government spending pushes more money into job-creating, natural resource utilizing activities then you could see an uptick in materials and labor.

    Trade wars could easily escalate as Congress works to anger Beijing. Then you get both Warren and Trump talking seriously about anti-trust legislation and it can spook the stock markets a bit.

    There’s still a lot of investment money flooding the system which will keep asset prices elevated, but it could easily rotate back away from US large caps at some point. Much of it has to be invested in something, but high levels of financial liquidity can produce large waves in valuations.

    I like having about 10% in gold and keeping stop losses tight to make sure I’m out on the early side if money flows shift. It does mean more babysitting of my portfolio though.

    • Wisdom Seeker says:

      @John Taylor, exactly how large does the deficit need to be before you recognize it as already-operating fiscal stimulus? I should think that trillion-dollar deficits during an economic expansion would qualify as fiscal stimulus?

      • John Taylor says:

        The deficits may seem large, but I expect them to get much bigger.

        Populism is gaining traction. National debt and deficits are not the primary concern anymore – other issues have been getting the limelight, along with plans that call for more spending.

        It’s important to remember that we are just trying to identify and follow the trends, we are powerless to change them. Think of investing like surfing … you merely try to identify a wave, ride it a ways, and go back to find the next one. If you try to fight it you’re bound to crash.

    • Beardawg says:

      JT – I think we are brothers from different mothers. Though I am currently waaaay too leveraged in rental real estate, I hawk eye my equity positions closely (too closely) because of how equity positions could shift quickly. What else can you do – other than hook your yoke up to the labor market in whatever form it takes during the next cycle ? I will take the lesser of 2 evils – hovering over my stop-loss buttons. ;-)

    • Since 2011 the price of gold has only correlated nearly 100 percent with the value of the U.S. dollar not deflation or inflation. Way back before everything was rigged gold actually did correlate with inflation.

  4. Willy2 says:

    – Yep, one more person who doesn’t understand the difference between inflation and DEFLATION.

    – Contrary to common belief Argentina is experiencing not INFLATION but DEFLATION. Yes, the argentine peso has fallen A LOT pushing argentinian PRICE inflation (much) higher. But argentinian interest rates have gone ballistic (=DEFLATION). As a result argentinian government bonds have fallen in price (= DEFLATION). Money has fled Argentina (=Deflation). Argentinian wages have remained flat while prices went much higher. It mean that more and households in Argentina are defaulting on their mortgages (=DEFLATION).

    • bungee says:

      There is a difference between inflation and deflation. But surprisingly not that much difference between hyperinflation and deflation. A hyperinflation is a loss of confidence in a currency. This leads to prices constantly outpacing whatever can be printed. So the problem becomes no one can afford the prices, which is the same in a deflation. Regular inflation is people bidding up goods and services. Hyperinflation and deflation are both problems of not enough money. We will have a hyperinflation. Gold. Go get some.

      • HowNow says:

        You’ve made an interesting point and I’ve been mulling over it. I think you’re right that hyperinflation is a kind of deflation, but I don’t think they’re the same. Hyperinflation is the deflation of a currency. Demand is increased because of the devaluation of that currency which accelerates. But what is normally thought of as deflation is a reduction of demand because of the belief that stuff will keep getting cheaper, so wait to buy.
        Regarding investing in gold, there’s an old adage: Don’t tell me what to invest in, tell me when to invest. Gold is a trade, it’s not an investment, and it’s based on fear, not intrinsic value.

        Incidentally, I found Kupperman’s article to be extremely clear and well-thought through, but I don’t think that Central Banks are as stupid as many (on this blog) think they are. An easy mark for people who are pissed-off. It’s easy to say, “what we need is a reset of the system”. It’s hard to imagine what would follow if that really happened, “…could you stand upright in the winds that would blow then?” (“A man for all seasons”)

        • bungee says:

          hi HowNow,
          Demand is increased because of the devaluation of that currency…

          This is where things get funny. Its not only an increase in demand. In a hyperinflation, people are not trying to just get dollars. They’re also trying to get RID of dollars. Prices are being raised to avoid dollars. There is a “pushing on a string” phenomenon.

          It’s the beginning of the new system where people refuse to save in the same medium used for transactions. In the past we’ve solved this with a gold standard. But that doesn’t work either. We run into the same problem on the deflationary side. Hyperinflation and deflation are similar problems in different systems.
          Deep topic. Endlessly interesting.

        • HowNow says:

          Bungee, that’s what I meant when I stated that the demand accelerates as the currency hyperinflates – people trying to get what they can while they can.

        • RagnarD says:

          Gold is wealth, not a trade. Gold is an end destination. Paper / currency is a transition point between two assets. i.e. Payment for some goats you sold yesterday, which you will exchange for a cow you will buy tmrw.

          What asset would you want a distant relative to have invested in, on your behalf, 200 years ago?

          Futher, if you consider holding what people have held as wealth for 1,000s of years a “trade”, what then is holding USD cash or bonds post 1971?

        • Frederick says:

          Not necessarily Gold is a store of value and insurance against insane monetary policy Always has been I don’t live in fear but I own some gold just in case I own lots of real estate and always have since the late 70s OK Boomer

        • John Taylor says:

          It’s best not to fret on exact definitions …

          Inflation and deflation have generally expected meanings of prices rising or dropping in a given currency, particularly in regards to “cost of living”.

          However, it can get a lot more complicated when you get into specifics because prices don’t move in lockstep, measures use general “baskets” of items that don’t fit any individual’s needs.

          The concept mentioned in the article is clear – no one is pricing any significant commodity or labor inflation.

      • nhz says:

        There is a very real difference depending on if people have significant savings or debt (and whether they have an income source and if this is from wages or fixed income).

        Many people in the developed world nowadays hold a large part of their capital in the form of private real estate, leveraged with a huge mortgage (in my country often a ~100% mortgage). In a hyperinflation the mortgage value is erased and you can pay it off with the small change from the grocery store while the property value goes up (probably even more than incomes, initially); the homeowner would profit hugely. In a deflation the mortgage will crush you.

        The elite and a big chunk of the voters don’t want (asset) deflation so the central banks will fight it tooth and nail.

        • Cashboy says:


          I do not “think owning property with a 100% mortgage is holding a large part of their capital”

          One is relying on property prices rising faster than the interest rates if you want an increase in capital in the future.
          One buys a house for personal use on the basis that the mortgage payments are less than the rent is and will be with inflation in the future and that you will own the house outright in 25 years time.

      • Frederick says:

        Yup and I have some and intend to buy more next week I see the writing on the wall and golds going higher soon ALOT higher I suspect Silver will follow along for the ride

        • bungee says:

          dont be surprised if spot gold plummets.

          Golds going solo. Silver cant tag along on this move… because gold wont climb, it will gap. all at once. overnight. physical only.

          dont believe me? its what happened in the great depression. same set up.

        • Arctic Chickens says:

          Of course silver will go higher. People here talk about how gold is worthwhile but silver is an industrial metal, don’t bother. They’re spoiled, is all. Spend time in a bullion shop – the low income buy PMs too. They scrounge and save to put together 50 or 100 USD to buy some silver.

          When inflation hits hard, it won’t just be big money chasing safety in PMs. The low income crowd wants to avoid getting burned just as bad and will turn toward what they can afford: silver.

        • bungee says:

          Arctic Chickens,

          I used to think as you do. But it’s not true. Silver is not more affordable than gold. By your logic scrap iron would be the best buy of all.

          Remember, the demand for gold is not denominated in weight. It’s denominated in currency. No one needs X-ounces of gold, they need $X worth of gold. Low income people can afford gold just fine. They just buy less of it.

          This concept is one of the keys to understanding WHY we say what we say. It is not that we are spoiled. Silver is an awesome metal and many of us started out by buying silver. But silver cannot do what gold is poised to do.

        • Gandalf says:

          Ahem, to all Silver Bugs,

          72% of all silver is mined as a BYPRODUCT of mining for copper, lead, and zinc. Which should tell you that

          1. Silver is not a rare precious metal

          2. Its price will skyrocket the day that all mining for copper, lead, and zinc cease, not because of macroeconomic doomsday concerns

          3. Like copper, lead, and zinc, its price will probably go up gradually with worldwide inflationary trends.

          4. Since the vast bulk of silver is mined with copper, lead, and zinc, it is in reality just a more expensive commodity just like copper, zinc, and lead. Common sense

          5. The day that large quantities of gold are found will be the day that the price of gold plunges. I suspect this will happen with the sea floor mining that is about to commence soon. China is one if the countries leading the way

      • daniel weise says:

        “Gold,go get some” a few posts below it’s “don’t be surprised if spot Gold plummets” Got it,will be closely following your investment advice going forward! LOL

        • bungee says:

          the question is what is spot price? Do you know how its determined? Its not supply and demand of physical gold. The gap up will be in the premium on physical. Paper longs will be dumping when they realize they dont own gold. Watching the “price action” is going to make a lot of people look foolish.

      • cb says:

        there’s price inflation and money supply inflation. Money supply inflation typically results in price inflation. And yes, asset prices going higher is price inflation.

        When the FED digitizes money the way they have been for the last several decades, that inflates the money supply. Price inflation follows.

        no mystery.

        (refuse to use propaganda terms like QE; call it what it is – “creating money from nothing”)

      • Willy2 says:

        – Hyper-Inflation is (credit wise) actually EXTREMELY deflationary because then the (REAL) value/purchasing power of bonds (=credit/debt)shrinks.
        – Hyper-Inflation occurs when a government can not borrow money any more. Then governments resort to (literally) “printing money”. Think: e.g Hungary in say 1948.

    • John says:

      I think the problem is in defining ‘inflation’. It is thought of as a ‘general increase in prices’. You can’t measure that. You can only measure an index of prices. The Austrians say ‘inflation’ is an increase in money supply. We all know there has been massive inflation of the base money supply.

    • Wolf Richter says:


      Kudos for the nuttiest twist-everything-into-the-opposite theory I’ve read all day. But hey, the day is still young :-]

      • Willy2 says:

        @Wolf Richter:

        – Original thoughts, right ? Agree, the day was still young when I wrote that. But I Always have my best ideas in the morning. Then the braincells are also refreshed from a good night’s sleep.

        – It’s actually VERY simple.
        – Inflation is defined as an increase of money and/or credit.
        – Deflation is defined as an decrease of money and/or credit. One has to look at credit, debt and money. Not at prices. But rising prices are required to create (credit) inflation (= increase of money and credit) and falling prices are required to create (credit) deflation.
        – Using these 2 metrics one can easily see why Argentina is experiencing DEFLATION. Money has fled/is fleeing the country = decrease in money and/or credit in Argentina = Deflation. And as a result interest rates in Argentina went through the roof. (Supply & Demand) And rising interest rates are Always a killer for ANY economy (think: Russia 1998, Argentina 2000 & 2001, Southern Europe between say 2009 and 2014) and the US (from 2020 onwards ?).

        • Wolf Richter says:

          You’re confusing your own theory about monetary inflation with price inflation. And it seems, you get monetary inflation at least partially wrong.

          But we’re discussing price inflation here, which is what you refer to when you discuss the economy and sales and wages and whatever else related, as we’re doing here. This is the standard common use of “inflation” from the Fed and the ECB on down to yours truly. It is defined as the increase in the amounts of currency needed to buy the same goods and services over time.

  5. Crazy Chester says:

    “Just wait until corporations learn how much they can make from a never-ending airport renovation project. Now multiply that by hundreds of airports in America that desperately need capital investment. Now add bridges, roads, bullet trains, water infrastructure and our electrical grid. Why are all the lobbyists trying to get us into wars with third world nations? Corporations would make more money fixing our infrastructure and it’s going to be a lot less politically contentious.”

    I’m waiting.  And I’m trying to think of a time in the last 50 years I’ve been watching when the above statement was not true.  Instead, 14K new trip wire troops – let’s be honest and call them what they are, with the amount deployed probably having more to do with a threshold number for bringing Halliburton in than any sort of deterrence – have been activated today.  So, instead, War is coming.  I guess a few of those Corporations find using our tax dollars to blow up 3rd world infrastructures to open up rebuilding them as 2nd world infrastructures not subject to the frustrations of 1st world inspections to still be somewhat profitable.  And why not?  It’s an election year.  Too bad we don’t just declare War on a different state each year to cash in on some of that rebuilding here.

    • Robbie says:

      Hey Chester, how’s your dog Jack?

    • Harrold says:

      For the most part, airport renovations are paid for by the airlines and by taxes paid by passengers. One reason you see airports under continuous construction is so that they can keep charging that airport improvement fee.

      The last major airport to open in the US is Denver international airport that opened in 1995.

      • California Bob says:

        “The last major airport to open in the US is Denver international airport that opened in 1995.”

        Did they ever fix that ‘automated’ conveyor belt baggage system?

  6. Chris Coles says:

    “I think the road-map ahead is a market crash, followed by obscene fiscal stimulus.”

    Which is why I created the concept of RecapGRE, to provide a sensible method to re-capitalise the base, grass roots economy.

  7. Willy Winky says:

    Things that make you go hmmmmm….

    As mentioned, investor-subsidized companies like Uber have helped keep inflation in check.

    I would add that Uber and the likes of Airbnb create jobs/income for very large numbers of people. And people with jobs are a good thing.

    Rewind to 1985 – imagine if I were to slap a sign ‘For Hire’ on my car – and start picking up passengers in New York city. How long do you think it would have been before I was hauled in and slapped with massive fines?

    Now imagine if I were to post my apartment to let in the newspaper classifieds by the night without a proper license. How long until the authorities showed up at my door and shut me down – then fined me.

    Fast Forward to the present – Uber is effectively running an illegal taxi service. Airbnb is effectively running an illegal hotel business.

    And for the most part the authorities have turned a blind eye to what are massive illegal operations. Investors don’t seem to mind either.

    Essentially this is like a coke dealer being allowed to put thousands of guys on the corners of every street in the world selling billions of dollars worth of coke. And investors scrambling to get a piece of the action.

    You know when the big officials meet at those big economic conferences. I have always wondered what they talk about.

    Could it be that after the GFC one of the items on the agenda was how do we create jobs and income for those at the bottom of the barrel?

    Perhaps we should turn a blind eye to companies that give the poor enough food to barely live…

    I am not sure if that is true however it would explain why, if I wanted to, could download an app, sign my name up, and drive into town and re-invent myself as a cab driver. Something that was not quite so easy back in 1985.

    • Dan Romig says:

      “So what is it? Why do you want to be a taxi driver? Do you need a second job? Are you moonlighting?”

      “I… I just want to work long hours. What’s moonlighting?”

      “Wanna work uptown at nights? South Bronx? Harlem?”

      “I’ll work anytime, anywhere.”

      • Cashboy says:

        Dan Romig,

        Uber drivers in the UK are 90% immigrants and the money for them is mega compared to their home countries. They luve frugally and send a lot home so don’t contribute to the UK economy.

        AirBnb is generally by private owners that are probably already capital rich. Most will not pay tax on the rental income.
        There is no VAT to be paid to the government as a hotel would have to pay. No wages to staff that is subject to tax as a hotel would have to pay. So doesn’t contribute to the UK economy.

        AirBnb is also not a Uk regaisterd company so their service charge is not subject to UK tax also.

    • sierra7 says:

      Willy Winky:
      Welcome to “Rickshaw America”!

  8. Michael Gorback says:

    This is upside down and inside out. Inflation or deflation are not cost of living. It all comes down to money supply, and credit is part of the money supply. Debt (the flip side of credit) is the deflationary process and it’s not going away.

    Ironically, we’ve been fighting deflation with money printing (debt issuance). Yes that causes price inflation (in this case asset inflation through the cantillon effect). It has nothing to do with shortages other than that the beneficiaries of the cantillon effect can only buy so much of what’s in the CPI basket.

    The shortage is in where a cantillon beneficiary can put huge chunks of money after buying computers, washing machines, cars, and all the other stuff in CPI. How many TV sets does Bill Gates need? The rest goes into stocks, bonds, real estate, etc – financial vehicles that can absorb a lot of money.

    There’s no shortage of educational opportunities or medical services; price inflation in those areas has nothing to do with supply and demand. I’ve written several articles for Wolf on the distortions in health care costs.

    Maybe there will be one last Hail Mary play of money supply expansion (I believe there will be and have been accumulating gold for the last 10+ years) but debt is ALWAYS paid, either by the borrower (repayment) or the lender (default). Inflation is just a slow version of default.

    The shrinking of the money supply through debt deflation is the final and inevitable outcome. Trillions in debt and unfunded obligations compounded by derivatives and counterparty risks. Maybe toss in a little rehypothecation of collateral (e.g., Jon Corzine, China, other criminals). OMFG!

    This will manifest as lower prices, which people conflate with deflation. But inflation and deflation are money and credit supply processes; price changes are the results of these processes.

    Kuppy mentioned looking at the “beaten down” sectors. What has everyone hated for years? Gold and cash. Mr Market loves it when everyone is sitting on one side of the boat.

    So hold some gold for the inflation and cash for the deflation. Pray that you get the timing right and while you’re at it pray that there isn’t a total meltdown, because when there’s no counterparty trust everything locks up and 2008 will look like warm-up frames at the bowling alley.

    • HowNow says:

      Michael, I disagree. I think that money supply is the medium, not the message. The economy is much more complicated, and big complicators are population increases, supply increases, increases in efficiencies (technology, innovation, etc), damage and regulation from externalities, and more . Supply and demand are the fundamental forces, not the money supply. And debt isn’t ALWAYS repaid. Just look at ancient history, many instances of times when debt was just extinguished and the society didn’t collapse, at least not at that juncture.

      • Lisa_Hooker says:

        HowNow – When debt is “extingushed” some fixed income cash flows stop and commensurate spending/new investment stops. Debt doesn’t just go away, it leaves a hole. Someone always gets hurt.

        • HowNow says:

          Maybe the only ones who were “hurt” were the rentiers. Here’s a snippet from Wikipedia about Solon, a leader of ancient Greece:

          “The Solonian Constitution was created by Solon in the early 6th century BC. … Solon promulgated a code of laws embracing the whole of public and private life, the salutary effects of which lasted long after the end of his constitution. Under Solon’s reforms, all debts were abolished and all debt-slaves were freed.”
          Note the words “salutory effects…”

          And it was reported that children of debt-ridden farmers were sometimes sold into slavery to pay the debts of their parents. I hope that doesn’t get you thinking…

        • Michael Gorback says:

          I agree Lisa. Money is lent into existence and when the debt is resolved the money goes back to where it from – nowhere .

      • Michael Gorback says:

        I dont know about media vs messages but I do know the difference between a disease and its symptoms.

        A urinary infection is a disease. Pain is a symptom. You don’t cure a UTI with pain medication.

        Money supply is the disease. Price changes are symptoms .

        • HowNow says:

          Def: of “Money”: “a current medium of exchange in the form of coins and banknotes”. Message, in the way I meant it (media vs. message) is that the cow, or the eggs, or the farm, etc., is the message or real item of value.
          Money, in a capitalist system – where innovations keep happening and clever people find clever ways to turn a medium into a real item – can turn money into a “message” ir real item. This is pretty inevitable in a capitalist system. The alternative is state issued and owned “real items” which is not much fun and which is circumvented by clever people (once again) who create black markets.

          What everybody (commenters here) is ignoring is that as systems/governments get larger (more complex), they inflate. And, because people are intrinsically self-centered, they find ways to feather their own nests first, and let whatever’s left drift down to the others. Some, like a Buffet, don’t let any feathers, no matter how small, drift away. To call money a “disease” is pretty adolescent.

    • nhz says:

      I mostly agree, prices are rising or declining at the same time in various sectors, depending on money supply and often manipulated supply and demand.

      For me inflation is already there, has been like that for at least 25 years: continuously rising cost (way above official CPI) in almost everything I need or am forced to buy/pay by the government. The only area where it isn’t obvious yet is in some of the CPI goods like food that has hardly gone up in 20 years (in my country influenced by supermarket wars, and a continuous decline in food quality). After all, there is only so much you can eat … For some the rising cost of necessities is more than compensated by their ability to go into debt (which has never been cheaper, especially for big ticket items like homes, education etc.) but if you have to pay out of pocket inflation is very real.

      BTW, in my country there is a developing shortage in education and healthcare services: there is almost unlimited demand (because it is paid for by general taxpayers, and hardly by those who consume the service) and we are now seeing a severe shortage of teachers and healthcare workers who demand MUCH higher wages. My guess is that when the higher wages are granted (already happening and may get worse) the shortage will worsen too, because many of these workers are working parttime thanks to generous salary and benefits, and higher wages will only make them work even less. At the same time the high work load in these areas (the real problem) makes them unattractive for many irrespective of salary, especially for those who would like a fulltime job.

      I don’t think gold is good protection in case of inflation, look at history and you see that often it doesn’t work. Gold is mainly disaster protection if you ask me. It isn’t beaten down either IMHO, it is 5-6x more expensive (in EUR or US$) than 18 years ago and it’s price has gone up even more than real estate (probably because in my country even 20 years ago RE was already very expensive compared to income). But I’m keeping an eye on it for a general sense of direction.

      History in my country shows that RE prices can easily deflate by 80% compared to incomes over many years (and even more measured in the currency). I wonder what happens to gold in such a case, I doubt it will increase or even keep its purchasing power for the big ticket items when stocks and RE crash.

    • Kent says:

      Inflation is the growth of credit in excess of production. We are living in an era where China can produce as fast as our banks can produce credit. So no inflation in consumer goods.

      But I agree with you, deflation is paying back the debt created by the credit. And, without significant changes in policy, deflation is the future.

      • dr_doomz says:

        “So no inflation in consumer goods.”

        No inflation in consumer goods? That’s exactly what’s happening as we speak, especially thanks to tariffs. What are car batteries, dog food? They’ve been going up 7% year over year. Maybe you meant to say consumer goods aren’t going up more rapidly.

        • Kent says:

          I bought a 2 liter bottle of Coke Sunday for $1.50 at WalMart yesterday. The same price I paid a decade ago.

        • Frederick says:

          Kent ,nice Just wait till you have to see the dentist and then you’re see the inflation in that coke

        • JMiller says:

          The fact is for the average person in the U.S. the vast majority of things like energy, homes prices, rents, autos, electronics, college tuition, nursing home cost, apparel, and even most food items have not gone up all that much. All of these things nationwide have gone up about 3% to 4% on average per year over the last 10 years. However I realize that there are a minority of people who have experienced higher inflation than most of us.

          There really are only a few things that I found have gone up significantly over the past 5 or 10 years nationwide. The main one is healthcare. Fortunately about 80% of the people get insurance through an employer or from the government so much of their healthcare cost is paid for. The other 20% either buy healthcare insurance on their own or go without any. Needless to say those people are paying a lot more out of pocket for their healthcare than the average person.

    • dr_doomz says:

      “There’s no shortage of educational opportunities or medical services; price inflation in those areas has nothing to do with supply and demand. I’ve written several articles for Wolf on the distortions in health care costs.”

      And there’s no shortage of deflationists, it seems, with their common doomsday deflation scenarios. Maybe it will happen, one time out of 10 thousand years, perhaps? As the article points out, the constant is inflation. Deflation shows up historically as teeny weeny little blips on a radar the size of the globe, every 100 years or so. Wish I had what you’re smoking.

      • nick kelly says:

        That Great Depression was quite the blip alright.
        If you were in the market in 29 and held (there were lots of fake bounces) you didn’t get even until 1954.
        Coincidentally, that was the first year the Empire State building broke even on an operating basis. The lender Prudential had twice passed on foreclosure, seeing no market and no point.

        Agree on one thing though; this is nothing new. In Ray Dalio’s latest he analyzes about 30 crashes in the 20 th. century. Inflation is followed by deflationary crashes. One thing about the US: having the # 1 reserve currency it makes a profit of 98 $ every time it prints a $100 bill ( actually a Fed check). So it can spin out the game longer than most as the country is mortgaged.

        • Wisdom Seeker says:

          The trouble with that “1929 to 1954” thing from the Great Depression is that in order to suffer that fiendishly, you had to have been the one moron who sat out the entire bubble up until the exact peak, and then bought at the worst possible moment.
          You probably had to also be dumb enough to lose all your dividend payments in the meantime. And not to take advantage of the price deflation in the early period 1929-1934. (Note: It’s extremely difficult to find a stock market chart from that time period that factors in both dividends and deflation!)

          The Great Depression was awful, but it was far worse for the millions of suddenly-unemployed workers than for the handful of people who owned nearly all the stocks at the time.

        • nick kelly says:

          The ‘one’ moron? Millions were in the market often via the investment trusts, the rough equivalent of mutual funds.

          Timing? You didn’t have to buy at the top to lose everything. Dividends? Check the dividend history in the period.

          As for taking advantage of the deflation from the ‘early’ 29 -34 period, if your money was in one of the nearly ten thousand banks that disappeared, that would be difficult. The experience of bargain hunters who had a bit of cash and bought in at 10 cents on the dollar in that period was to be wiped out. The Goldman Sachs investment trust went public at over $100 and bottomed at 1.50.
          Singer Sewing machine fared about the same, as did its dividend.

          As for the real suffering that was to come, including for many who had been in the market, where did I imply otherwise?

          Wouldn’t your thoughts on that be better directed to the guy I was replying to, who thinks the Depression was ‘a teeny weeny blip?’

    • Frederick says:

      Michael If you are listing the most beaten down, unloved assets you have to include silver which is historically VERY Undervalued even against gold IMO Silver has the greatest chance of outperforming of any asset going forward

      • Michael Gorback says:

        Sorry about not mentioning silver. I own quite a bit because I think it would be weird scraping little pieces off a gold bar at the gas station when I could just hand over a few silver eagles.

        OTOH when you’re paying the freighter captain to get you out of the country you can probably pay with however much gold fits in your shirt pocket. With silver you’d need a hand truck.

  9. Andre says:

    anyone please reply with ETF suggestions representing sectors that could benefit from a fiscal spending binge (i am also quite sure it will happen, it s the logical continuation of the current trend).

    • gomers pile says:

      brazil ewz

      india inda

      emerging market dollar denominated debt – like eem, emb

      [ good until USD implodes that could be decades, until it does implode everybody must cover their debt by buying and paying back in USD ]

      All the above plays are already doing well in the known-known implosion of corp usa debt and FED printing fiat to infinity

      dollar denominated debt is most interesting, lots of companys are paying +5%

      If your serious student of ‘inflation’ or ‘deflation’ then read Marc Faber’s book “Tomorrows Gold” while +10 years old, he covers decline&fall of all western civilization for +2000 years; like today mercantilism, paper money becoming worthless and what it means & meant for the peasants

      • HowNow says:

        And after you read Faber’s book, read a really sensible article written by Warren Buffet’s essay for “Fortune” magazine in 2/9/12: “Why stocks beat golf and bonds”. That should cure you.

    • nhz says:

      I’m pretty sure we will see a surge in medical procedures thanks to many new possibilities of genetic tinkering, regeneration, artificial organs, countless new vaccinations etc. that are in the pipeline. Whether these procedures are medically wise or not, a large percentage of the population feels fully entitled to get anything that is possible whatever the cost, because they are not personally paying the bill. When health-care starts crowding out all other sectors in the government budget (in the US apart from the military I guess), maybe the FED and ECB will start targeting private health in addition to climate change and offer the possibility of a 100-year no-money-down NIRP mortgage on your private health workup (i.e. tax all others with savings left who don’t want to join the madness).

      Of course difficult to say which companies / sectors will really make money because much of that is decided by politics which is “noisy”: it need not be the medical service providers that profit the most, it could also be financial/insurance companies or even the people who consume the services (not likely, but you never know in the current totally mad e-con-omic climate).

      • Michael Gorback says:

        Just buy whatever the donor class is supporting. How is it that Medicare can set hospital fees (Part A) and physician fees (Part B) but CMS is not allowed to address medication prices under Part D? Somebody paid good money for that little clause.

        Who really wrote the ObamaCare law? The donor class.

        They should make politicians wear sponsor decals like NASCAR drivers.

        • Gandalf says:

          Big Pharma paid off the politicians to ban Medicare from setting drug prices during the W Bush administration

  10. GianT says:

    “If you thought QE was nutty, wait until you see what drunken sailor mode looks like.”

  11. DV says:

    Good logic, if it was not the comment on the Sheremetievo airport in Moscow. Maybe the author was waiting in the original terminal built for 1980 Moscow Olimpics, but the airport itself has seen hundreds of million of investment over the past 10 years. To start with three huge new terminals were built in addition to the original one with one more being constructed. An underground tunnel has been built to connect the terminals with a cable-driven train along with an express rail link from the city center and a toll free way. A lot of facilities appeared around the airport like hotels, office buildings, etc. On top of that a third runway opened last year that features a unique bridge for planes over a highway. But, of course, this is nowhere near the new Istanbul or Beijing airports.

    • Wolf Richter says:

      I think Kuppy was raving about how nice the airport is compared to US airports: “…but it’s still light years ahead of LaGuardia or LAX.”

    • Frederick says:

      DV I had the pleasure of flying to Warsaw out of the new Istanbul airport recently It’s a big improvement on the old Ataturk airport in the city center but the trip from my apartment is brutal It’s built in the Belgrade forest area NW of the city center

  12. Tim says:

    Rampant inflation has been with us all along – but in asset prices rather than consumer prices (even though the latter are understated).

    Money creation causes inflation. But the inflation happens at the point where the money is injected which, since 2008, has been asset markets.

    The ratio of asset prices to incomes has become absurd, which means it has to return to equilibrium. That can hasppen either if asset prices collapse, or incomes are “increased” – ho, hum – by inflation.

    Stopping a market crash has become priority #1 for the Fed. That suggests gargantuan QE – which, in the end, won’t work.

  13. Tim says:

    Additionally, ultra-high inflation (= ‘soft default’) is our only route down from the top of Debt Mountain.

  14. R2D2 says:

    A nice contrarian piece, and good sanity-check.

    But the “new reality” worldwide today is labour oversupply, cash oversupply, oil oversupply, and information oversupply.

    Never before has history seen such a glut of people, money, fuel, and info / data.

    Consumer inflation is caused by a shortage of labour, cash, oil, or information.

    But, today, and tomorrow, there is no shortage of billions of adults happy to work for peanuts, tens of trillions of dollars of spare money washing around the world financial system, millions of barrels of excess oil are being produced every month, and one click on the Internet gives everyone more information, knowledge and awareness in 1 minute than all of mankind saw in the entire 20th century.

    As long as the human population keeps rising, the financial system keeps flowing, the shalers keep shaling, and the Internet keeps connecting and informing, there will be no US or global inflation.

    • nhz says:

      You are underestimating how much inflation a government can generate even if there is an oversupply; countless examples of this in Europe and I guess much of that exists in the US too. As they say: give the government control of the Sahara and before soon they will run out of sand.

      In my country there currently is a huge (IMHO artificial) shortage of workers for education and healthcare sectors as mentioned above. These are not the type of people you can find everywhere and who work for peanuts; they have very nice salaries and benefits but are demanding huge wage increases and they will get them which drives up the cost of education and healthcare even more. And it isn’t just services, government can drive up the price of e.g. fuel or land (artificial shortage by restricting supply with zoning etc.) beyond imagination by tacking on all kinds of taxes. Even my bill for internet services has increased by over 100% in the last ten years without any obvious benefit (theoretically the speed has gone up, not in practice).

      No inflation, really? You seem to live in a parallel universe …

      • JMiller says:

        True, that while the cost of cable and internet service may have doubled over the last 10 years for the average person, the vast majority of other things like energy cost, homes prices, rents, autos, electronics, college tuition, nursing home cost, apparel, and even most food items have not gone up all that much. All of these things nationwide have gone up about 3% to 4% on average per year over the last 10 years.

        • nhz says:

          this varies very much depending on ones situation but IMHO for many people these costs have gone up a lot.

          The price of private homes in my country has increased over 10x in the last 30 years; most of that has been compensated by rates going down (12% in the early nineties, 1.0% for a 10 year fixed mortgage nowadays) and ever looser mortgage conditions. But the debt still has to be paid and incomes are not even 2x higher than 30 years ago. College tuition same story: WAY more expensive than 30-40 years ago but you can now get a student loan for almost nothing (rate 0.4%) so people don’t care. Nursing homes: again HUGE increase in cost but people who make sure they have no capital when they need a nursing home pay nothing – if you are stupid enough to have savings you are screwed though …

        • 91B20 1stCav (AUS) says:

          Mr. Miller: figures on wage increase %’s in the same timeframe?

          A better day to all.

        • GrassRanger says:

          And those of us whose wages or pensions have grown by 1% or less are being are facing penury if your trend continues!

    • gorbachev says:

      Hard to disagree with you.But if and it is a big if

      the gov,t{that is us} decided to spend trillions{we are

      borrowing that anyways to give to people who don’t need it]

      to spend on infrastructure that would be a game changer

      labor supply wise and inflation wise.

    • dr_doomz says:

      “there is no shortage of billions of adults happy to work for peanuts”

      Where are these workers? None around here and I don’t know any local business that would agree with you. We in fact have a labor shortage and can’t pay people enough to do the simplest of things. On the Internet, arm chair economists connect from a different planet it seems.

      • Unamused says:

        Where are these workers?

        Southern hemisphere, mostly. They all come with strings attached. No help there, I’m afraid.

      • JMiller says:

        You are right. In the area that I live, I think we have more help wanted signs than there are people available for all those jobs.

  15. Rory says:

    Kuppy, what sectors / assets do you like both near and medium term? Aside from gold, since theres plenty out there on that, wheres a good place to be since if you’re right cash wont be a good place to hide? (Serious, non-rhetorical question). This seems to be the great dilemma of the everything bubble, since no one can time its demise and its final size.

    • Frederick says:

      Silver is my top choice since the gold / Silver ratio is so out of whack around 80 to 1 when historically it’s in the 16 to 1 range Obviously heavily manipulated lower as TPTB don’t want Silver or Gold catching a serious bid It would destroy confidence in their already teetering fiat house of cards they got going

      • Rory says:

        WRT to silver I assume you mean an ETF or other means since storing any kind of meaningful amount of physical silver is not viable IMO. With gold I think a mix of physical and an ETF backed by physical is the way to go, but silver you’d need a bank vault. All ears though if you disagree

  16. Whirled Peas says:

    “Inflation is always and everywhere a monetary phenomenon. ” Milton Friedman.

    The Federal Reserve is the enemy of the saver.

  17. AV8R says:

    “What happens to trillions in negative yielding long-dated bonds if inflation ticks up?”

    They will be sold.

    “What happens to bond proxies like global large-cap equity indexes or real estate?”

    They will be aggressively bought with the proceeds.

    “Who invests when expected returns are negative?”

    What? Bonds? Not me. Ill be buying Large-Cap equity indexes and REIT’s because they will EXPLODE higher. Can’t wait!

  18. Kasadour says:

    Interesting article. I was wondering if negative interest rates would come up. I remember when the mere mention of negative rates drew skepticism and yet here we are facing down $17 TRILLION outstanding in negative yielding bonds worldwide, and so we are forced to consider the implications. There exists no historical reference point that economists can look to for guidance, nevertheless, evidence is starting to show that negative rates are highly DEFLATIONARY and a drain on GDP.

  19. Petunia says:


    I’m a NYC girl living in flyover country. I’m living the shift in the economy. When we could no longer afford NYC twenty five years ago we left, when we could no longer afford Florida four years ago we left. I’m living the deflationary life. There is no room for inflation in my life because when one necessity goes up in price another one gets scaled back. I’m the weakness in your analysis. We don’t own financial assets and never will. We are not an anomaly either.

    I am currently living in the south and there are trends here nobody on Wall Street knows about, both political and financial. In a nutshell, people are disengaging from the system in big ways. Wall Street can’t win in a game people won’t play anymore.

    • elizabeth steinhilber says:

      Tru’dat! You go, Petunia. It needed to be said. Thank you!

    • Lisa_Hooker says:

      Petunia- Bingo! As people realize that if you can’t afford it you can’t buy it, and adjust to that fact, the whole credit/debt machine is slowing to a crawl. Life’s not so bad if you manage it well.

    • Mean Chicken says:

      I agree completely.

      Oddly enough and I cannot explain the connection except perhaps as an illustration of how people have short memories and forget history far too often, but this reminds me of the time we became stuck in a big storm while traveling across country.

    • daniel weise says:

      Yes,too many people where left behind during the “RECOVERY”. this will have socio/economic consequences on a large scale. it is playing out world wide as we speak (HK,France,etc) and will eventually hit the US. wasn’t there a Movie “the forgotten man” ?

    • Kerry says:

      Panama is looking better and better…

    • Old-school says:

      Getting out of the system can be a rational choice. I got out about 13 years ago. Cut expenses to the bone and got off the hampster wheel. It has become such a habit that I probably could now increase my spending by 3X but realize it wouldn’t make me a bit happier.

      Once you have necessities covered, happiness is an internal thing and maybe feeling you are making your own choices. Once you get older it’s all about staying healthy and being at peace with your life’s choices anyway.

  20. Unamused says:

    You need a crisis that’s severe enough that both political parties can agree on stimulus. We’re not there yet, but we will be.

    Boy, that’s hopeful.

    Crises have a way of being unmanageable, especially if they’re big enough. You already have several ‘severe crises’ on your hands as big as the planet, you’re stuck with tools that can’t begin to deal with any of them, and you can only expect insurmountable opposition before you even get started.

    You can already tell that ‘stimulus’ won’t work because you already have loads of ‘stimulus’ and the situation has only worsened to the point where it is no longer salvageable. What you need are radical structural changes, and those can never happen because they’re politically infeasible, and besides, it’s too late.

    Brilliant analysis for the most part, I must say, but some conclusions are incorrect because several implicit and crucially important assumptions are incorrect, such as the possibility of maintaining the status quo in systems which are fundamentally unsustainable, increasingly unstable, and under escalating existential threat.

    Sorry. I don’t mean to be rude, or unnecessarily contrary, but facts are facts.

    • Petunia says:

      If they really wanted to stimulate the economy they wouldn’t be throwing people off of food stamps. They wouldn’t have limited the increase in social security benefits to 1.6% next year and then increased medicare costs by most of the increase. They are never going to give anybody anything because all they know how to do is take.

      • Harrold says:

        A huge portion of food stamps are used at Walmart. At some point this will start to effect the 1%.

    • HowNow says:

      I think I know whose body George Carlin’s soul migrated to.

  21. Emanuel Rosen says:

    What is on your list please?

  22. unit472 says:

    I have some gold ( Canadian Maple Leafs ) but when and how I could convert them into spendable cash is not clear. The IRS considers them ‘collectibles’ and subject to a 28%? capital gain tax if I redeem them conventionally. Of course, in an emergency situation, say a major war or natural disaster, would cash be more valuable than a $1500 gold coin? I can’t buy gasoline with gold and walking around with a pocket full of gold or silver coins was never popular even when they were legal tender thus paper bills.

    I’m retired and my spending beyond food and gasoline is almost all for services especially insurance. Health, property and auto insurance never end. A lot of our economy is that way now. Used to be the only monthly service fee people paid was for their telephone. Now most everything has a monthly or annual subscription fee. Paid my property tax yesterday. That too never ends and even though my home is paid for but I, like many today, have a monthly Home Owners Association fee that never ends. Then their are utilities. Got to pay those bills every month.

    There are no hedonic adjustments or product substitutions available for 90% of my spending so even if you have no debt you feel as if you owe a lot every month because you do.

    • Harrold says:

      I’ve read stories of gold being very useful as bribes.

    • Old-school says:

      At one time in my life I used to be wagon puller so to speak. Property taxes $4000, income and social security taxes probably another $25,000. Plus stashing another $10,000 into a 401K.

      Now it’s property tax $60 and income tax 0. And social security payout $21,000. I guess the way modern life is we are primarily economic machines and we constantly have to be implementing the plan that we think is best for us.

      It can be frustrating living the upper middle class dream as you definitely are going to be paying more than your fair share.

  23. IslandTeal says:

    Inflation or Deflation… A lot of the problem is unchecked and out of control price increases. A recent 3 day trip to the hospital ended with a “billing” that had, amongst other items, an 81mg aspirin charge at $2 each. Call it what you want and rationalize it to your hearts content. The total billing was $150K….. The system is broken!!!!!

    • Ran says:

      Broken to those who aren’t shareholders/investors etc ;)

      • Old-school says:

        I just read that health care passed 20% of economy. I think this is the way things go. It’s going to eat so much of the economy that it just can’t go on any longer and will get restructured.

        In some ways the federal government is borrowing money with average maturity of 7 years I think to pay for the bill. But of course it’s funny money borrowed at zero percent real rate.

  24. Paulo says:

    And just wait until there is a war, my common folk friends…a real war, not these never ending persecutions attempting to ensure NG pipelines, oil routes, markets for million dollar one shot missles, and (of course) wars that increase the wealth and influence of the elites; domestic oligarchs, even if they do sound folksy and down home once in awhile. Then, let’s talk about inflation.

    I’m old enough to remember the Viet Nam fiasco, and how endless money printing to pay for that war affected so many economies, countries, and lives. How about the miniscule reduction in oil supplies after the embargo…and those endless gas line ups on even/odd days? What was it, a 7% reduction in crude supplies? And as for the much vaunted ‘Energy Independence’ meme seen in recent articles, ultimately prices reflect World supplies and demand, not what one country has in stock. Canada produces over 2.5X domestic needs, and actually has a physical surplus in petroleum products except for those dilutants which are supplied by US Shale over production. Do we have rock bottom gas prices in Canada? Of course not, because the energy market is not just domestic. Local farm stand and grocery store aisle prices do not reflect the reality of (for example) the collapse of a growing season igniting Arab Spring. Local $2 US/gal 80/87 will not stand for long in a global supply reduction caused by Iranian sanction anger, or a directed terrorist attack. Or war.

    Okay, WS is a wee bit doomerish. Many commenters don’t like drinking kool aid or eating Kudlow pap and prefer to critically develop their own conclusions based on their life experience. Thankfully, this is a safe place to share.

    I have experienced rapid rapid inflation. I have experienced a rise in mortgage rates 2.5X% in a five year period. (7% to over 20%) I have experienced an inexplicable job layoff and several years of underemployment, experiences I escaped only because I had no debt beyond a modest mortgage and the skills to find decent paying work elsewhere. I flew bush planes, every summer for 100 days straight without a day off. By September I was a powder keg ready to blow, all hidden by jokes and smiles. But by God it was work and I brought home a moose every fall with a recharged bank account; a moose cut, wrapped and frozen.

    Hey maties, there’s a thin skinned loose cannon-captain rolling around the pitching deck of a warship. All the officers do what they are told with no discussion or dissension. The enemy list is growing by the day and opponents smell weakness and vulnerability. Every other country is dealing with increasing dissent and rising debt. Opponents are well armed and have a rising sense of ‘nothing to lose’ as they are forced into their corners. Alliances are melting away, and once allies will not risk support for generations, if at all or ever again. This is NOT a recipe for dealing with an economic emergency, particularly after all the powder has already been used promoting Stocks with QE.

    Like I said, I (and many others on this Site) have experienced rapid inflation and catastrophic upheaval in their adult lives. Some of you have not, but if any of you think it cannot happen and happen very very quickly, you are wrong. It is never different this time. Preps are individual and local. Nevertheless, without preps individuals will be forced to rely on luck, hope, and prayer. I wouldn’t limit my options given current leadership and conditions, just sayin’.

    • 91B20 1stCav (AUS) says:

      Well said, Paulo, as my experiences and observations closely mirror yours.

      People, get ready, and may we all find a better day…

  25. HollywodDog says:

    Wolf’s first line is key: “Investing is all about probabilities.” The world financial system is too large, complex, and chaotic to be understood, let alone controlled by any one actor. He surest way to demonstrate that you don’t know what’s going on is to claim you know what’s going on. Personally, I hedge my bets: I live (and spend) for the day, but keep a little squirreled away in case an asteroid hits or I actually retire, the two of which are equally improbable.

  26. RD Blakeslee says:

    Cost of living depends greatly on where you live.

    For example, The following article shows West Virginia as among the lowest population density and having the fastest shrinking population, percentage wise:

    The article offers the usual disparagement of our quality of life and I’m glad it does! As an independent person, I would not want to see a great number of people “discovering” and overrunning us.

  27. Mean Chicken says:

    Does an ocean of cheap capital and negative rates result in overproduction, thus pushing prices lower?

    • Wolf Richter says:

      It did in the US oil patch. Cheap capital creates overcapacity. Which destroys prices. Which eventually crushes the sector and kills overcapacity. From the ashes, as capacity is crushed, prices rise. Which stimulates cheap capital to move in… Rinse and repeat.

      • Mean Chicken says:

        That’s a pretty good example of how most of what we hear is total nonsense and useless information, for the purpose of encouraging poor choices.

        Remember reports rates were going to the moon last year, the year before that and so forth? China dumping, bla-bla, rates fell.

      • nhz says:

        strangely this doesn’t apply to real estate in many parts of the world; despite NIRP, investment in home building (production) in my country is lower than ever. Investment (speculation) in existing RE, taking it off the market, is huge though :(

        maybe the key is that thanks to the NIRP environment and despite the highest RE prices ever, the ROI for real estate is only 2% nowadays (used to be around 10% one generation ago) with some remote corners of the country having 4-5% ROI if you are lucky. 2% isn’t much given the potential troubles with upkeep, renters (if any) etc.

  28. fred flintstone says:

    If the trade deficits are reduced as Trump is rightfully trying to do……more cash stays in the US chasing the same goods…….that is called inflation.
    Yellow metal…….

    • Mean Chicken says:

      Cash from overseas returning to the US will have similar effect (for the mention).

      Labor arbitrage, combined with compensatory financial engineering has largely gotten us to where we are today. (IMO) Pendulums swing both ways, thus unwinding the shebang might be a rocky road.

      Or we could keep giving each other haircuts and go nowhere, as some prefer.

      In my ventures through Asian lands, I learned they’re not big into importing finished goods, the emphasis is on exporting them. This partially explains forces behind technology transfer.

  29. Is this thing on! says:

    After reading this I can’t help but think back on my recent trip to europe. My tour guide was sure to let me know that her healthcare is paid by VAT and therefore not “free.” She added that the only difference between our healthcare systems is that their doctors are not millionaires.

    A simplistic view? Perhaps, but point made.

    • nhz says:

      yes, in Europe most of the cost of healthcare is paid from general taxes, especially income taxes and to a lesser extent VAT. Most EU citizens have no idea about the true cost of healthcare and assume the mandatory healthcare insurance covers all the cost (in my country true cost is about EUR 8000 per person every year; healthcare insurance is a small fraction of that).

      And while US doctors have extremely high fees, significant part of this goes to insurance, lawyers and other parties involved in their services. I doubt the average medical specialist is worse off over here, but in the US it is probably easier than in most of the EU to start a medical business that racks in many millions.

  30. Assets inflate because the dollar loses purchasing power. Takes more dollars to buy interest in a corporation. Deflation (despite global population growth) has two elements. Many of the people being born are not ‘economically viable.’ They have no stake in the global economy. Then the world is shrinking, because of electronics we all live in one space, this tends to bring about uniform pricing. Policy initiatives could bring poor people into the global economy. Multinational corporations welcome new customers but raising the standard of living in the EM is hard. The largest economy in the world still resists a political solution to the dislocation of workers by automation, and cheap offshore labor. Who owns the robots, (internet) and by Neoliberal policy that is the oligarchs or the mercantile class. Assuming these things work themselves out through personal initiative (capitalism) is last century thinking. Inflation was both palliative and poison to the old working class, (get a fixed rate mortgage, but once you retire you get buried under rising costs). If we could inflate the value of money then prices would come down and workers would have more to spend, but that looks curiously like deflation to those who already hold those assets and have extended their debt obligations (made bad personal choices which government seems more inclined to forgive than those who did not take on a 1/4M in debt for college). Sound money conservatives are virtually extinct because they represent the sea change that results in a massive reallocating of assets. In theory everyone who owes a dollar owes it to someone who does not owe a dollar.

  31. Gandalf says:

    Real Inflation has been higher than the official CPI ever since the first adjustments to how it was calculated were made in 1983. The difference from reality has only gotten worse as further changes were made.

    In Wolf’s long overdue missive about hedonics in the CPI, he failed to mention another bit of fakery that goes on to make the CPI lower than it really is – substitution, where its assumed that if the cost of something goes up, consumers will substitute a cheaper item.

    The BLS will make sure to hide inflation for quite a long time longer with its fake CPI, perhaps adding even mire fudgevfactors.

    Nobody wants to hear that inflation is going up. Neither Democrats or Republicans. Inflation means financing the federal deficit will skyrocket, which means higher taxes will be needed to reduce the deficit and those pie in the sky massively expensive programs touted by the current Democratic candidates go out the window. Tax cuts and infinite federal spending thru MMT all go out the window

    As long as ALL of our politicians and ALL of the news media, mainstream, financial, leftist, right wing, MSNBC, Faux Notnews, continue to repeat this lie, and the real truth of inflation remains buried in a few arcane websites, people will believe that inflation is low.

    It won’t be until the MSM catches wind of this fakery that things really blows up

    • Wisdom Seeker says:

      Amen regarding substitutions in CPI. But burgers aren’t steak and the stuff that is padding out the burger meat (“pink slime” is apparently ok now) isn’t even burgers!

      More to the point, what’s the substitution for housing and healthcare (50% of CPI)? Will online certification courses deflate CPI for education, which used to be taught in terms of fundamentals rather than certifications, by genuine experts in an environment where personal insight and peer-to-peer learning were able to round out the textbook?

      • nhz says:

        For housing there are too many tricks to keep the inflation number low, like using imputed rent (asking clueless homeowners how little they think a renter pays for the same home). Or only using the rents for social housing (which by definition almost tracks CPI and social security payments) which in Europe is by definition a huge understatement of real renter cost and inflation.

        For healthcare I’m sure my government only tracks the cost of healthcare insurance which is hardly related to the real cost; but even that has been inflating at over 10%, although just like with housing there is a large chunk of the population that doesn’t pay anything because all their costs are compensated by the taxpayers, or who simply don’t pay the mandatory insurance because they know it is too bothersome for government to go after them (e.g. temporary foreign workers).

  32. DR DOOM says:

    Is there an example of an Empire halting its path to ruin and self correct? ,I think not. It’s two bullet Russian roulette ,deflation or inflation. The game is afoot.

  33. Jdog says:

    This article fails to take into account the many macro indicators that point to a slowing and even stalling economy. Economic cycles are dictated by one thing and that is debt. Debt continues to grow until it can no longer be serviced by a substantial portion of the borrowers. Both corporate and personal debt has reached the point where the sub prime market is beginning to rapidly growing delinquencies, which is the indicator that this cycle is coming to an end. This is the time you will see very aggressive attempts to pump and dump so that those with significant exposure can liquidate as much as possible at the highest price.

  34. tommy runner says:

    ‘cosmik debris’

    • Mean Chicken says:

      “Cosmic Religion”

      But 1st, which causes the other?

      1) Intersymbol Interference
      2) Envelope Delay Distortion

  35. michael earussi says:

    Inflation occurs when the money supply increases faster than the goods available for purchase. In our modern very efficient productive system that seldom happens for anything that can be made in a factory, which is why we don’t see much inflation in things like electronic equipment.

    But for things that can’t be manufactured rapidly, like housing, demand can easily increase faster than supply leading to inflation in that one area. But because of the intense concentration of the wealth into fewer and fewer hands inflation has become focused on just a few areas that only the wealthy want like stocks and other investments.

    So when “experts” talk of the possibility of general inflation as opposed to inflation concentrated into just a few narrow areas I have to wonder what they think will cause such a sever contraction in supply in the thousands of everyday manufactured goods that will trigger that inflation.

    • HowNow says:

      The Phillips Curve attributes inflation to the level of employment. Friedman said inflation was due to excess money in the system. Shiller says that it’s behavior: if enough people think something is going to inflate, it will.
      I don’t think that the speed of production is that great a factor, in terms of inflation. If housing demand gets intense, builders get busy until there’s either a significant mortgage rate increase, a recession or similar, but it isn’t a factor of how quickly a house is built.
      I think Shiller and other behavioral economists have it right: inflation and deflation are more about the stories we believe than anything else.

      • nhz says:

        Agree, just look at one of the first financial bubbles, Dutch Tulip Mania of 1635-37. An epic bubble (almost half the population participated in some way) with zero relation to “production” or “employment”, both on the way up and the way down.

        For housing there was an interesting report from Dutch ABNAMRO bank many years ago about the first phase of the Dutch RE bubble in the nineties. They looked in detail at reasons why people were buying homes (bigger family, job move, more income etc.) instead of e.g. staying in their home and adapting, and why they were paying more for a home than they could really afford (which almost everyone did then, you could even get 200% mortgages …). By far the biggest reason was the FEAR of “buy now or be priced out forever”, you HAVE to get on the housing ladder and keep climbing. The fairytale that housing always goes up has been working its magic in Netherlands for over 30 years, except for a small dip after 2009 that was papered over by politics and easy money. The big majority of the population still believes and assumes that even if home prices ever stop rising, the government will bail out the homeowners.

        Clearly “housing never goes down” and the fear of being left behind is a stronger meme than Tulip Mania, which was mostly based on GREED (grab your part of the profits before it is too late) and ran for just two years.

  36. Leo says:

    The question is how to position for inflation.
    Stocks are crazy expensive by every historical valuation measure.
    Housing – where I live the price of an apartment divided by median(or average) salary is now at totally unprecedented levels. Prices are at a point where most people can not buy an apartment. Prices can not go any higher without increase in wages, as housing here becomes totally unaffordable.
    Gold? I never believed in gold. It is worth so much only because people believe it is worth so much, and beliefs can change. Also, sooner or later someone will start mining asteroids for gold, and it will be the end of it.
    Bitcoin? I don’t see why it should be worth anything at all. The only reason it is worth so much is because it is heavily manipulated by large stakeholders.
    Cash and negative yielding bonds – well, not good for inflation.
    So it seems like everybody is actually positioned for inflation as prices of every kind of asset are sky high.
    So where do you put your money?

    • nhz says:

      “Prices can not go any higher without increase in wages, as housing here becomes totally unaffordable.”

      Of course prices can go even higher, simply by moving to ZIRP or NIRP for mortgages (and easy conditions like no money down, interest only etc.) together with the expectation/assurance that central banks will never increase rates again, making leveraged bets in real estate (or stocks etc.) a zero risk opportunity of a lifetime. Even more so if your country offers a guarantee against any financial loss from selling your home, like in the Netherlands. Heads I win, tails you loose! Never underestimate what politicians and banksters will do to keep the Ponzi going.

      In general I agree with you, many of the alternatives to cash have gone up tremendously in the last 10-20 years, there are no safe havens anymore. A proverb from my country is “Alles van waarde is weerloos” (Everything of value is defenseless). Still true, especially defenseless from criminal central bankster policies.

      However, if you think everybody is positioned for inflation, cash might be a good position for contrarians because then everybody is “in” and there are no more succers to draw into the game.

  37. Sinbad says:

    Inflation is actually currency debasement.
    Inflation did not exist under gold or silver currencies.

    • Gandalf says:

      Yes they did.

      Whenever a new large source of gold was found, the value of gold dropped.

      The Spanish conquistadors stole so much gold out of the Americas that this caused inflation at home in Spain

      Seafloor mining is poised to become huge in the next few years. Although cobalt and manganese are the immediate targets, gold is also known to exist in large quantities on the seafloor

      I would, again remind you of the history of aluminum. At one time, this common but difficult to extract metal was more precious than gold. It was so expensive that the top of the Washington Monument was capped with a solid block of aluminum, not gold or silver.

      Just a few years later, the electrolysis process for extracting aluminum was discovered, and aluminum has become so cheap we wrap baked potatoes with it

      • nhz says:

        Yes who knows what will happen in the finance world when we discover a profitable way for transmutation of e.g. lead to gold (I remember reading a few suggestions in that direction over the last 10 years, but IMHO a profitable process is very far away), a different way of mining (e.g. using bacteria in the sea) or an asteroid with very high gold content. Better not bet everything on just one horse ;)

    • HowNow says:

      Sinbad, read up on the economic history of ancient Rome. They started with bronze coins, then silver, and eventually gold; then other metals followed. Whatever the metal the Romans considered “precious”, it gradually became debased over time. And the coins with PM got smaller, too.
      People exaggerate the permanence and primacy of gold. There were island societies that used sand dollars as currency, tobacco was used in early America. Gold’s real value? Compare a painting by Picasso. Now it’s worth millions. P. turned out paintings any day of the week he wanted to.

  38. Jeff Relf says:

    Pol Pot Communism ( where subsistence farmers
    and businessmen trade careers, destroying
    everything-n-everyone ) is fueled by jealousy.

    Mainland China is jealous of Hong Kong, killing it.
    Bernie Sanders is doing the Pol Pot dance here too.
    The world has gone insane.

    Children have become a liability, not an asset.
    The world isn’t so much “in” a depression
    as it is depressed — old and young alike.

  39. KFritz says:

    In the “I beg to differ” category: cities’ restriction of supply is NOT the main driver of real estate inflation. That reads like neoliberal agitprop. On a visceral level, that sort of ‘misanalysis’ makes this reader wary of the entire piece.

  40. HR01 says:



    Won’t bother to dissent on the ‘no inflation in the past decade’ point as others have done so above.

    Energy inflation? Based on demographics, appears peak consumption is in the rear-view mirror. However, if the experts are correct and the globe is on the cusp of a Grand Solar Minimum, then all bets are off WRT energy usage.

    Yet have to agree that some severe inflation is likely a’coming before long as it seems highly probable that some sovereign or other will do something really stupid before long, triggering the next major war. This coupled with fiscal stimulus will work wonders for the CPI.

    Fiscal stimulus already announced out of Japan. Something like $260 B or thereabouts. Equivalent amount in the U.S. (based on our much larger economy) in excess of $1 T. This observer would expect nothing less from our Congress critters.

    The one wild card though is how much of the herd is thinned in the next conflict. Heavy casualties might render the inflation ‘transitory’ in a matter of years.

    Would be ‘interesting’ to see how CB’s behave in an environment of crushing financial asset deflation and raging consumer price inflation.

  41. cb says:

    Your words:

    “But of all potential economic outcomes, the one least anticipated and least priced in, is an uptick in inflation.”

    Wolf’s words from a very recent article:

    “For anyone alive today, the US dollar has nearly always lost purchasing power with regards to consumer goods and services, such as food, cars, healthcare, or rent. There were a few brief periods when the dollar gained in purchasing power. But those periods are rare. And the Fed despises these situations when workers are able to buy a little more with the fruits of their labor.

    In my lifetime, there were only two such periods, from March through October 2009, and a teeny-weeny bit during the oil-bust of 2015, when energy prices collapsed. During my lifetime, the dollar has lost 90% of its purchasing power. That’s the Fed’s plan, as long as it happens within certain limits.

    Now, all this is according to official inflation figures, the Consumer Price Index, or CPI, put together by the Bureau of Labor Statistics. The CPI is critical because it is used for inflation-adjustment purposes across the spectrum, such as inflation-indexed Treasury securities, measures of “real” wages, cost-of-living adjustments for Social Security benefits, or measures of “real yields” or “real returns” on investments or “real” GDP.”

    I have no idea what’s priced in, except for Fairy Dust and continued debasement of money by the FED (Digitizing money). But I think it’s a rare adult who doesn’t expect continued inflation.

    • Wolf Richter says:

      But if you look at bond yields, there is practically no inflation price in. In Euroland, deflation is priced in. What you and I expect and what is priced in are two different things.

      • cb says:


        Are the Bond Markets not completely manipulated? How many bonds do you thing Mr. Draghi ordered bought? Do you think the FED’s pushing their balance sheet from 800 Billion to Over 4 Trillion helped suppressed bond yields, and negated “priced in” inflation? How about the huge currency swaps between countries? Wonder how many US Treasuries were purchased through Brussels with “Swapped” newly digitized money?

        Remember the Bond Vigilanties? It appears they were just a figment of misguided education. A whole lot of finance professors should be stripped of their phd’s.

        The central banks get to digitize money. There’s a whole lot of manipulation possible with endless money. You can expand the money supply and at the same time suppress interest rates. And, voila, drive the stock and real estate markets.

        Is it going to break?

        • nhz says:

          Agree, does anyone belief that Greek bonds at yields below 2% are a good investment, a country that I’m 100% sure is NEVER going to pay off its debt. Italy same story. Or Dutch debt at below 0%, a country that if it was bookkeeping like a corporation would be considered bankrupt because of its epic private debts (290% of GDP) and unlimited future promises?

          Current bond prices are based on the assumption that a greater fool (the ECB) will buy the bonds from you for a higher price. As ECB is running out of eligible bonds to buy, it is thinking about buying stocks directly (instead of indirectly, up to now) and feverishly trying to set up other ways to inflate the markets and fleece the general public like their version of the Green Deal (which will do nothing for the planet/climate, but make the elites even richer and further increase inequality).

          E-con-omists keep coming up with every crazier ideas, you really have to wonder at what point people finally start to realize that it is all a house of cards, build on lies. It probably helps that big tech and government are in bed together to make sure that the public gets ever more dumb and clueless …

        • Wolf Richter says:


          Yes, the bond market is the most manipulated market in the world, and officially so. Which raises serious issues, in terms of what is “priced in”: for example, in the Eurozone nothing is priced in anymore other than current and expected central-bank actions.

          So what happens if inflation goes to 10% and bonds still have negative yields because central banks repress interest rates and buy bonds and impose perhaps a yield cap? What happens is the destruction of bond holders via inflation.

          This is already happening on a low level. But 10% a year is a different story. These bond holders are pension funds, life insurers, banks…. This is future consumption that is getting destroyed.

          And this is what Kuppy is saying too in his close: “Inflation is coming. Be VERY careful if you own assets with duration risk.” Assets with duration risk include long-term bonds.

        • nhz says:

          @Wolf Richter:

          “What happens is the destruction of bond holders via inflation”

          Yes, but what if the real bond holders are primarly the EU citizens (savers), because it is the ECB that owns most of the bonds?

          Pension funds would lose money too but no doubt politicians have a solution for that, which again shifts the cost to current savers and workers and future tax payers. Also, when the pensions are not indexed to CPI (they aren’t in my country) it becomes much easier to pay out the promised sums with high inflation. Life insurance often same story I guess. So I doubt companies and government worry about high inflation, as long as they themselves still get to feed from the ECB money hose at near zero rates …

          Future consumption is just that … future. For politicians and current industry managers even four years is a VERY long time :(

  42. Pieter says:

    Cost – Push inflation (see production costs of everything including tariffs, labor cost (benefits & training), other fees and taxation) until 2027. Don’t forget as we shift demographically to an older population that there will be a giant shift in what is “in demand” today vs. 2027 when almost all of the boomers will be over 65 years of age. Need for NEW houses and cars at high prices…. NO. Young people are straddled with debt already….. you really think they want anymore. We will have more industries for AI/automation (demand) if there will growth outside of healthcare. Major shift for medical long term care, medical supplies, and all that stuff older people need/want….. high demand. Invest in older people needs and wants because they hold the $$$$.

    • Wolf Richter says:


      Funny how people who mention the dying boomers in their discussions doomy demographics never mention the millennials, the largest generation ever, larger than the boomers, and they’re now reaching their prime earnings and spending age. And they’re starting families and they’re doing what people have always done. They will replace the boomers plus some without breaking a sweat.

      • nhz says:

        My impression is that in most of the West the percentage of millennials who start a family is much smaller than in the boomers days, and the families are a lot smaller too (at least in most of Europe, maybe the US is different?).

        • Wolf Richter says:

          Birth rates in the US are not as low as they are in Germany, Italy, Japan, China, Russia and many other countries. But they’re lower than they used to be. But boomers already had much lower birthrates. It’s the parents of boomers who had high birth rates. By the time Boomers figured out how to have sex, the Pill was already widely available in the US (1960). It’s too early to see how millennials will be doing in that department. Boomers already had kids much later in life, and millennials are starting even later.

      • Willy2 says:

        – Wrong. The Baby Boomers were a much larger generation than the Millennials are.
        – The US population is still growing. The US birthrate is already below 2.1 (1.7 ??) but this is compensated by cititzens living longer. Although the latest data shows that even that is starting to fall for the first time in decades.
        – On top of that, the Millennials are leaving school, universities and college with much larger debts than the Boomers ever had.

        • nhz says:

          US seems to be in relatively good position …

          EU birthrate is already down to 1.1-1.4 in quite a few countries. And that’s including the new migrants who keep the average high, without them it would look even worse. I don’t think this situation is going to improve because the main reason is clearly lack of economic/career opportunities, with many Millennials forced to live at home with their parents or share home with roommates instead of being able to rent or buy their own home, let alone afford children (although in many EU countries this is well affordable if you are on social security …).

          Student debt and far higher home prices are a big factor, but possibly those could be changed by political decisions. But I doubt that will happen, because the Boomers would be first in line to pay for it.

          Looking on the bright side, EU already has plenty of people and no need to produce (or import) more of them, certainly not with the resource-hungry lifestyle we are used to.

        • Wolf Richter says:


          “The Baby Boomers were a much larger generation than the Millennials are.”

          Good lordy. 76 million boomers born, 72 million alive in 2017, vs. 91 million millennials.

  43. c1ue says:

    I have great respect for Kuppy and read every posting at his blog: adventures in capitalism.
    I have to say, however, that the inflation specter is unconvincing in the short and even medium term.
    The primary driver for inflation isn’t money printing – it is labor pricing power. We’ve seen unprecedented printing for more than a decade now in the US, but offshoring and what not had simultaneously destroyed labor pricing power in the US – so there is very little inflation.
    Yes, things are more expensive in absolute dollar terms, but that has been happening pretty much continuously since the US closed the gold window.
    The only way labor is going to get pricing power back is a major political upheaval – and Trump isn’t it. He represents upheaval but I don’t seem him enabling the “little people” to get paid more.
    I say this in respect, and also point to the multi-decade wrong Fed interest rate policy to show that the Fed and US Government policy can be irrational far beyond anyone’s expectations.
    In summary: the specific driver to high or hyper inflation still isn’t there – it won’t be external as there is zero evidence of the dollar reserve status changing. The means must then be internal – and I don’t see a political consensus or even a large political movement with actual power coalescing to make this happen.

    • nhz says:

      you are SO totally wrong: just read some history books about previous real hyperinflations and you will see they had ZERO relation to labor pricing power. Dutch Tulip Mania, the South Sea Bubble, the Weimar hyperinflation, Zimbabwe, I could continue …

      also, I really don’t understand how you can claim that there is very little inflation. Is little when you don’t need a wheelbarrow to carry your currency to the grocery shop??

      • c1ue says:

        Dutch tulip mania had nothing to do with inflation.
        South Sea bubble had nothing to do with inflation.
        Weimar occurred because Germany was devaluing against its foreign debts.
        Zimbabwe is the only example you cite which can be an example – but yet again, Zimbabwe isn’t a good corollary because it is small, very little trade, dirt poor and most importantly: doesn’t have a currency which is the international reserve monetary unit.
        Your wheelbarrow story is also wrong – inflation occurred before the US starting increasing its national debt dramatically.
        The dollar’s purchasing power has been declining ever since the US left the gold standard, so the real question is whether the price inflation has been more than typical, and how much more?
        Most importantly: inflation hurts the people with money most. It devalues debts, which are owned by the poor people. This is a powerful political counter-force.
        Note that I never said that the facts Kuppy cited are wrong – what I said is that there needs to be more than just macro-economic imbalances in order for a hyperinflation to occur in a large international economy.

  44. Cashboy says:

    I think people need to rethink their lifestyle.
    Most people seem to be living beyond their means trying to live the American Dream.
    The American Dream as George Carlin said is “buing rubbish you don’t need with money you do not have (debt) to impress people you do not like”.
    In the UK, they say you cannot afford to buy your own house and live etc.
    That is complete rubbish!
    Here is an explanation I give my client’s for their children:

    Minimum wage is £8.25 per hour
    Work a 40 hour week
    40hrs x £8.25 => £330 / wk x 52 wks => £17,160 per annum
    Bank will give you a mortgage of about 5 x gross salary => £17,160 x 5 => £85,800 mortgage
    You can buy a shit hole terraced house in Burnley etc. for £35,000.
    No stamp duty on purchase price below £125,000
    But let us say that one pays £56,000
    Get a deposit of 10% => £6,000
    Get a 25 year mortgage of £50,000
    Monthly repayments will be between £220 and £230 per month.

    Minimum required hours for £50,000 mortgage
    So for a full time job take the £13,000 / 52 wks / £8.25 minimum wage => 30 hr week job.
    A gross salary of £13,000 will give you a net monthly salary as follows:

    Gross £1,083.33
    Income Tax £ 8.33
    NI Ees £43.72
    ______ £52.05
    Net Wage £1,031.28

    For a 40 hr week
    Gross £1,430.00
    Income Tax £77.67
    NI Ees £85.32
    ______ £162.99
    Net Wage £1,267.01

    Living Costs per month on minimum wage gives net wage:
    30hr week £1,031
    40hr week £1,267

    Mortgage as above £230
    Council Tax £90
    Electric £40
    Gas £50
    Water £20
    Internet £25
    Total House/Utility Costs £455

    This cost is equivalent to renting a room in the south £455

    But here you have your own house !

    Other Costs:
    Food & toiletries( £57 per week) £250 per month
    Mobile Phone £6 per month

    Total living costs is £710 per month.

    This gives you a surplus of between £320 to £556 per month for entertainment, travelling , clothes savings etc.

    Look at this compared to living in South East England where you pay a landlord £450 per month to rent a room in a shared house compared to living in a two bedroomed house that you will own and will increase in value.
    I am sure that it will increase in value because:
    Population of the UK is predicted to increase by 3 Million people over the next 10 years.
    To build a house that you can buy for £56,000 in the north of England, you could not even by the building materials, let alone the labour to build it, the land it is on and the services in it (sewage, water, electric, gas supplies).

    Find a job locally and walk to work (keep healthy).
    And if you want even more money, rent one of your two bedrooms to a friend (about £250 per month), the rental income for renting a bedroom in your own house is tax free in the UK.

    Healthcare in the UK is free in the UK.

    • nhz says:

      Wow, the cheapest POS home in Netherlands would cost at least 100K euro (probably in an earthquake-prone area; in my own remote corner there is nothing even below 150K and those are homes I would not touch with a long pole, you know such cheap offers are fishy) and it will likely need expensive repairs before you can healthily live there, and be in an area where natives are no longer welcome. Even an old garage for the car is already twice what you are quoting for a cheap UK home … And healthcare isn’t free here either (neither is it in most of Europe). I don’t think it is as easy as you are suggesting.

      And besides, going into debt for such a property may not be clever. e.g. in my country the government is trying to force everyone to adapt there home for their Green Deal, costing 80-120K per home. You can get an additional, very cheap mortgage for that but the plan is to FORCE people to spend the money or go into debt for this. Adding 100K or so on top of a very cheap home doesn’t sound like a great plan to me.

    • c1ue says:

      Sounds good, except you make a lot of assumptions on the availability and stability of jobs.

  45. Cashboy says:

    What is rising at a dramatic rate that is not included in the CPI are government fines and penalties and interest.
    These include motoring offences and late submission of returns etc.
    It appears to be difficult to avoid those now.
    In fact is seems to be a larger and larger source of income for the government.

  46. Shawn says:

    Damn what an amazing article thanks for sharing Wolf!

  47. You’re suggesting that real estate prices haven’t gone up? Based on what, the hedonic value of going from a 1600 sq ft acreage home to a bloated 2.7k? And even if energy costs the same, that home requires more of it.

  48. People often point out the inflation of existing goods, but one shouldn’t overlook the new necessities. Internet, multiple cell lines, dozens of online accounts and subscription services, etc. Haven’t you heard that this is the “subscription economy”? I also suspect daycare wasn’t $10k/yr (minimum) in the 70’s (adjusted).

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