The problem with the notion that we have “real inflation” coming is that inflation is NOT just measured by quantity of money, but velocity.
So even when you have someone “sitting on interest rates,” if people think that money has less value, they will spend it quicker. Just the opposite over the past 10 years. People have been sitting on money, and sitting on it.
There is an alternate theory that I have advanced that so far no serious economists (and I know a couple) have been able to completely debunk:
What if, since the 1990s, we have had such astounding REAL increases in productivity-—not as measured by government, but as measured by ordinary people in their cell phones, electronics, homes and on and on-—that traditional measures have not captured it, let alone properly “monetized” it? What if instead of too much money through QE1, 2, and whatever, we had a period of DEFLATION so deep-—exacerbated by the 2008 crash-—that we still have not climbed back out?
George Gilder kind of agrees with me in his new book “The Scandal of Money,” but then urges a return to the gold standard. He never really gets around to dealing with HIS OWN THEORY that we began massive, unprecedented productivity expansion in the 1990s.
I don’t know. I used to be a quasi-monetarist, but nothing is fitting any theory. The last time this happened was 1776 when Adam Smith designed a new theory to fit new realities.
See my above post. I think we have talked about this.
Have you read Gilder’s new book, “The Scandal of Money?” He pretty much refutes everything he wrote in “Wealth & Poverty.”
These are very good points. And I suspect that velocity is down partially as a reaction to the very low interest rates.
A hidden productivity deflation is something that is suspected to have occurred during the Roaring 20s. It’s very possible that we could be in that situation again.
I suspect that what currently appears to be inflation is a result of globalization, competition from China for purchasing items where we didn’t used to have to them competing. That’s higher prices due to supply and demand.
There’s an argument for the gold standard but we would have to free the US Dollar from being the world’s reserve currency. Triffin Dilemma would return IMO.