Do you think that any inflation in (for example) house prices should only be in reference to the amount of gold needed to buy them, as opposed to NZD or USD?
Printable View
Inflation has been flat for decades and has struggled to rise .
When you print trillions of dollars in a short period of time it makes you believe inflation is on fire.
In reality when the money printing stops, (it has in NZ) interest rates rise (hopefully not)
Deflation follows it's normal course.
I know this sounds strange but they need to raise the inflation target to at least 3 or 4% to keep the economy stimulated.
Or they will eventually lower interest rates possibly negative in a few years creating further asset price inflation.
Wealth gap increases.
As I alluded previously, the battle between deflationary & inflationary forces continue, and post GFC that battle has only intensified. In fact since Covid blew up we have all witnessed it intensify at an even greater rate. The rollercoaster ride has had some even wilder peaks & troughs.
NEGATIVE interest rates, House price explosion, Oil price going into negative pricing & then reversing & charging, Gold price peaking and then FALLING, PE Ratios across the globe going to ATH's, Debt levels (Private & Public) blowing out to unprecedented levels, etc etc.
So where is all this going? That's still the big debate, but one that very few truly know or understand. Central Bankers included. Keep in mind that there is also a tremendous amount of "smoke & mirrors" in play here. A small example of this is well BEFORE Covid; Sept - Dec 2019. A new sick canary appeared in the mine. Very quietly, the US Repo market spreads started to misprice, and the FED stepped in and desperately started to throw the kitchen sink at the Repo market. To give some context, this had last occurred as a precursor to GFC, in mid 2007.
What we can do is look to history as a guide to what MAY happen. Just remember though, "markets seldom repeat, but will rhyme".
Historically one subtle but very important marker has been that in nearly every country which has experienced a period of Hyperinflation (recent example Zimbabwe), at some stage just prior, the country has first experienced DEFLATION (less money chasing the goods & services). Deflation often results in the nominal prices of goods & services actually falling. Banks, enterprises & citizens start trying to get their hands on cash and whenever possible hoarding it.
However, the tremendously destructive forces of deflation are truly revealed when an implosion of debt eventually occurs. That creates an situation where in nominal terms the debt stays the same, but the assets & income supporting that debt FALLS.
In summary, I proffer that the answer to the question on whether it's Inflation, Deflation, or Stagflation that starts dominating globally over the next 1-5 years is going to be shown by seeing how all the debt gets treated & dealt with. The debt that was already at unprecedented levels prior to Covid and has expanded exponentially since.
Finally, here's a little tidbit for you. The average corporate JUNK Bond rate in the US is now yielding an average of 4.3%pa (another all time low btw). A junk bond is generally accepted as being rated at below BBB, so the market recognises a higher a chance of failure; as in potentially losing ALL your capital!
So you get a 4.3%pa return and if all goes well, your money back. Yeeha! Yet, the "official" inflation rate in the US is now over 5%pa.
Crazy huh!
1. Stocks: all-time highs
2. Home prices: all-time highs
3. Incomes: all-time highs
4. Job openings: all-time high
5. US Core Inflation: highest since 1991
6. Fed: we need 0% rates through at least 2023 & trillions more in bond buying to boost asset prices & increase inflation...
WTF ?????