Still waiting for inflation

Yeah, prices have been going up...except for one thing: gold.  What we have been experiencing is shortage-generated price inflation.  Shortages of various commodities obviously cause them to become more expensive, while surpluses tend to have the opposite effect.  The more essential a commodity is, the more serious the impact of its price inflation.  However, commodity shortages can often be just "screwdriver" problems that can be simply solved by increasing the supply, such as by drilling for more petroleum and building more refineries.

Gold, however, is not a commodity.  Hardly any gold is actually consumed, and very little "new" gold is ever added to the mix.  It just changes hands, over and over.  The various gold rushes of the nineteenth century, particularly in California, did manage to have a noticeable effect on the supply and the price.  But that was well over a hundred years ago, and conditions have since stabilized.  Our planet has also become much more fully explored since then.

Meanwhile, a thousand dollars will buy about the same amount of gold today as it did ten years ago.  Why?  Some may say that shrewd manipulators have been gaming the markets.  I'm more inclined to say that another hard asset has been competing with gold: real estate.  No one wants to rent gold, and real estate not only protects against inflation, but can also provide cash flow.  Now, of course real estate is much more difficult to buy and sell, and it requires maintenance and other administrative duties.  Every now and then, the price of gold bumps up when places such as India experience economic uncertainty.  Yes, there are several other countries that have governments that are even less concerned about the stability of their currency than is ours.

But the rampant economic illiteracy that infects our public sector is more than likely to contribute to true inflation, where the price of gold goes up and the value of money goes down, regardless of the abundance of essential commodities.  The powers that be are currently announcing grandiose plans such as providing consumer subsidies to offset the pain of higher prices, while also arbitrarily forgiving billions in student debt.  These can only further devalue our money.

The point is that true inflation, the debauching of our currency, is still in the offing.  It's just that it really hasn't hit the fan yet.  And there's still possibly some good news in the form of rising interest rates.  We're not talking about the politically inspired Federal Funds Rate, but rather the 10-year Treasury, which is auction-driven and a key index for establishing mortgage rates.  Although rising interest rates further burden borrowers, they also express an increasing value of money.  There are also many retirees who derive much of their "passive" incomes by collecting interest on their accumulated cash.

When it comes to forecasting financial events and trends, I am reminded of Harry Truman's famous comment: "I wish I had a one-armed economist, so he could never say, 'Well, on the other hand.'"  Without a doubt, however, there is way too much political involvement in our nation's economy.  When President Trump was tasked with nominating a new chairman for the Federal Reserve, I was kind of hoping he'd pick the junior senator from Kentucky's father, the former congressman from Texas, Ron Paul.  Sometimes it can actually be a good idea to let the fox guard the henhouse.

Image: PublicDomainPictures.

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