Tuesday, January 13, 2015

Inflation types - Asset, Demand, Currency

Manipulating Trends we do not even Understand as a Society

Hello Martin
We now have the dilemma of what is real value and what is currency depreciation/appreciation.
Take the real estate market in Toronto. The market has been going up every year since 1995. I know because my home has gone up every year except that blip in 2008. Now my question to you is what is the real value of an asset when you have currency depreciation and inflows of capital from abroad.
Thank you for sharing your knowledge with everyone.
ANSWER: People tend to just lump everything into one category. Yet there are distinctive forms of inflation outside of the hyperinflation that is the collapse in confidence in government. I have desperately tried to explain that the very concept of hyperinflation as touted by so many pretend analysts is just wrong. This type of inflation has NEVER taken place within a core economy, which collapses from deflation. As taxes rose in Rome, people just walked away from their property and left the city. The courts became corrupt as we have today and only rule in favour of the government. Once that happens, we lose all rights and that begins the economic decline for there is not true ownership. We have police using civil asset forfeiture to fund their own budgets today precisely as the Roman Army began sacking their own cities to get paid. Even Japan kept devaluing the last currency with each new Emperor to the point that the people no longer trusted Japanese coins and world not accept them. The Japanese used commodities and Chinese coins for 600 years. That is deflation – not hyperinflation.
3FACESn of Inflation
Outside of the hyperinflation, there are three main types of inflation created by different sources – ASSET  - DEMAND - CURRENCY. The ASSET inflation is the general rise in prices due to the progression of inflation. Hence, wages are higher today than in 1980 as are cars to real estate. This is the steady, yet uneven rise in private assets with the decline in the purchasing power of a currency that many claim will lead to hyperinflation without any authoritative documentation.
Then there is DEMAND inflation. This is isolated within a sector such as real estate, stocks, commodities as a overall group. This will also include a particular item such as say oranges because a storm wipes out the supply.
It is this final category CURRENCY inflation that seems to confuse people the most. This is created by the decline in the foreign exchange value of a currency on world markets. The rise in the dollar during the Great Depression led to protectionism because government wrongly believed that adding tariffs would equalize the import price. When a currency drops in international value, then the cost to import goods rises. This creates the CURRENCY INFLATION and when the currency rises as did the dollar during the Great Depression this produces CURRENCY DEFLATION, which we will see moving forward.
Understanding the real nature of inflation and money is critical for most of the time we end up in serious trouble trying to manipulate the trends we do not even understand as a society.

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