GS751 (28.78)

Inflation

July 06, 2008 – Comments (2) | RELATED TICKERS: FXF , DBC , SPY

I love listening to Will Rogers talk about innovation.... "There have been 3 great innovations since the beginning of time, fire the wheel and central banking...." There are many ways to approach inflation, some see it is as good, others see it as bad, I'm with Milton Friendman, not Bill Phillips..... From a psychological standpoint The Economist gets it right "High and unstable inflation makes it impossible to achieve the feats of co-ordination that underlie a successful economy. If you do not know the purchasing power a year or two hence you cannot make plans and contracts over such spans of time." (Economist, October, 1999) Keynes has a nice quote about inflation: "As the inflation processed and the real value of the currency fluctuates widely from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery." This quote made me think about a lot of things, most specifically securitization, personally I think securitization is a bad idea, my main point being that it distorts the relationship between debtors and creditors, which are the "ultimate foundation" of capitalism. A side note but, If you read about China, they way agreements approached (or contracts as some people like to say) in their society is very interesting. Inflation has many effects, fundamentally I believe inflation is always bad, Inflation distorts price signals, which lead to a misallocation of resources, uncertainty is created due to differences in average and relative prices, which usually leads to reduced investment. All and all what do I know, I'm just a 19 year old kid..... in long run were all screwed.....