The Rising Influence of Rising Affluence

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Fred K, >> risk is deflation rather than inflation <<


Jim Rickards agrees that the deflationary side will continue to prevail, at least for now, in spite of the Fed's desire to generate higher inflation (link below). He also discusses the overall state of the economy, CBDC/Central Bank Digital Currencies, and related topics -

48:00-52:00 is especially revealing, with charts showing the huge rise in the M1 money supply, while the all important (for inflation) 'Velocity of Money' (ie turnover) has been steadily falling for years and continues to fall.

Rickards explains that both monetary and fiscal policy are likely to fail to achieve the desired growth and inflation, because 1) Debt/GDP is too high (thus suppressing economic growth), and 2) Velocity of money is too low (which suppresses inflation).

Velocity/turnover is the key to inflation, but has a large psychological component. Once the psychology finally turns, then inflation can take off like a banshee.

More broadly, it is the fractional reserve aspect of our financial system, combined with Velocity/turnover, that generates the inflation. In our current fractional reserve system, the reserve requirement is 10%, so a bank can receive $100 and then lend out up to $1000, so a rapid 10 fold magnification of the money supply. But the banks have to be willing to lend, and the public be willing to borrow/spend, so a large psychological component.

As you said, the lack of trade unions in the US is another important aspect, and will suppress wage inflation. But on the other hand, demographics will tend to put pressure on wages as the baby boomers retire and the labor pool shrinks. The push toward a $15 minimum wage will be another factor, and right now wage inflation appears to be taking off.

Another key is that in a debt based money system like we have, where money is lent into existence, you can't create money without creating debt. Eventually the system becomes hopelessly bogged down in debt and a 'reset' is needed, either a debt jubilee, or a new monetary system like the SDR/Special Drawing Rights.