Monday, 2 November 2009

Quote of the day: On inflation and deflation

    Inflation is classically described simply as an increase in the money supply. Although these changes will impact price levels, it doesn't necessarily follow that prices will rise when inflation is high. Instead, inflation may merely result in stable prices at a time when prices would otherwise be
    In the popular mentality, however, inflation is simply defined as prices rising. After decades of steadily rising prices, people seem to have forgotten that prices sometimes fall. In light of the bursting of a number of record-breaking, government-fueled asset bubbles, prices should be declining across the board (as they did in the Great Depression). The fact that prices are stable, or have even rallied in some sectors, indicates that inflation is already spreading across the economy.”

    - From ‘Stealth Inflation’ by John Browne,
      Senior Market Strategist for Euro Pacific Capital, Inc.,
      and former advisor to Margaret Thatcher
      [hat tip Rational Capitalist]

That pretty much puts the current arguments about “will we have inflation or deflation now” in perspective, don’t you think?

1 comment:

Say what you mean, and mean what you say.
(Spam will be removed, unless it's been asked for.)