This post Inflation Can Return Much Faster Than You Think appeared first on Daily Reckoning.
Consumer price inflation has remained persistently low, despite the Fed’s best efforts. This has led many people to ask where the inflation is, because the Fed has created trillions of dollars since the financial crisis.
But there has been inflation. It’s just been in assets like stocks, bonds, real estate, etc. How about bitcoin? Bitcoin increased about $2,000 yesterday alone! It’s trading at about $16,000 as I write. We’ve never seen anything like it.
The bottom line is, we’ve seen asset price inflation, and lots of it, too.
But the question everyone wants to know is when will we finally see consumer price inflation; when will all that money creation catch up at the grocery store and the gas pump?
It’s difficult to say exactly. But once it does happen, it will likely strike with a vengeance. Double-digit inflation could quickly follow.
Double-digit inflation is a non-linear development. What I mean by that is, inflation doesn’t go simply from two percent, three percent, four, five, six. What happens is it’s really hard to get it from two to three, which is ultimately what the Fed wants.
It’s proving extremely difficult just to get up to two. Personal consumption expenditures (PCE) is the core price deflator, which is what the fed looks at. Currently, it is at about 1.4%, but it’s stuck there. It’s not going anywhere. The Fed continues to try everything possible to get it to two with hopes to hit three.
The reason is that it’s not purely a function of monetary policy, it’s a partial function of monetary policy.
It’s also a partial function of behavioral psychology. It’s very difficult to get people to change their expectations, but if you do, it’s hard to get them to change back again.
Inflation can really spin out of control very quickly. So is double-digit inflation rate within the next five years in the future? It’s possible. Though I am not forecasting it. If it happens, it would happen very quickly. We would see a struggle from two to three, and then jump to six, and then jump to nine or ten.
This is another reason why having a gold allocation now is of value. Because if and when these types of development begin happening, gold will be inaccessible.
To this point, I am often approached on, “How can you say gold prices will rise to $10,000 without knowing developments in the world economy, or even what actions will be taken by the federal reserve?”
It’s not made up. I don’t throw it out there to get headlines, et cetera. It’s the implied non-deflationary price of gold. Everyone says you can’t have a gold standard, because there’s not enough gold. There’s always enough gold, you just have to get the price right.
That was the mistake made by Churchill in 1925. The world is not going to repeat that mistake. I’m not saying that we will have a gold standard. I’m saying if you have …read more
Source:: Daily Reckoning feed
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