Tag Archives: Transitory inflation

Does anyone honestly believe that inflation is ‘transitory’ anymore? By Simon Black

How can an inflation that stretches back to at least 1971 be transitory? From Simon Black at sovereignman.com:

In the early summer of 1514, Spanish conquistador Ponce de Leon returned home to the court of King Ferdinand as a hero.

De Leon was among the first of Spain’s conquistadors to discover gold– right here in Puerto Rico. And that was enough for him to be knighted and bestowed all sorts of royal honors.

By that time, Europe had been suffering a shortage of gold and silver for nearly a century; mines and mints had closed down all across the continent, triggering what economic historians call ‘The Great Bullion Famine’ in the mid 1400s.

So the supply of money, i.e. gold and silver, was essentially stagnant. Technically European money supply was falling, because most European kingdoms ran a trade deficit with Asia and the Middle East.

Yet at the same time, European economies were finally starting to grow again following the consequences of the Black Plague and the Hundred Years War.

English wool production, for example, nearly tripled between the mid 1400s and the early 1500s.

So with more goods and services being produced at a time that money supply was falling, prices declined. This essentially what deflation is.

Wages, rents, and food prices in Spain, for example, dropped 25% over a century, according to economic historian E.J. Hamilton.

Now that actually sounds pretty good. But to Europe’s rulers, this deflation was a total catastrophe. And it sparked a number of international expeditions to find more gold.

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Is Inflation “Transitory”? Here’s Your Simple Test, by Charles Hugh Smith

The only way you can believe inflation in the US is “transitory” is if you don’t buy stuff. From Charles Hugh Smith at oftwominds.com:

Is inflation “transitory” in your household budget? Really? Where?

The Federal Reserve has been bleating that inflation is “transitory”–but what about the real world that we live in, as opposed to the abstract funhouse of rigged statistics? Here’s a simple test to help you decide if inflation is “transitory” in the real world.

Let’s start with some simple stipulations: price is price, there are no tricks like hedonics or substitution. Nobody cares if the truck stereo is better than it was 40 years ago, the price of the truck is the price we pay today, and that’s all that matters.

(Funny, the funhouse statistical adjustments never consider that appliances that used to last 30 years now break down and are junked after 3 years–if we adjusted for that, the $500 washer would be tagged at $5,000 today because it has lost 90% of its durability over the past 30 years.)

Second, inflation must be weighted to “big ticket” nondiscretionary items. The funhouse statistical trickery counts a $10 drop in the price of a TV (which you buy every few years at best) as equal to a $100 rise in childcare, which you pay monthly. No, no, no: a 10% rise in rent, healthcare insurance and childcare is $400 a month or roughly $5,000 a year. A 10% decline in a TV you buy every three years is $50. Even a 50% drop in the price of a TV ($250) is $83 per year–absolutely trivial, absolutely meaningless compared to $5,000 in higher big-ticket expenses.

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