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Tom Grey's avatar

These 202x years are not the 70s calling. Then, there was a huge increased demand from Boomers, and a shortage of capital.

Today, no big demographic increase, and no big shortage of capital.

Then, "inflation expectations" were not so much talked about - now they're assumed to be ever-present, and mostly rational. Expecting inflation, and planning for inflation, usually causes individuals to take actions which increase inflation.

Energy price increase ARE similar to the 70s.

Increasing energy prices look a lot like inflation, "(almost) all prices rise", even tho the higher energy using products go up relatively more. While not quite necessary, and certainly not sufficient (there wasn't big inflation with oil at $150/bbl in 2008), higher oil prices, in looking like inflation, DO increase inflation expectations.

The main driver of this years big inflation is last year's excess gov't spending. Trump spent the most that could be spent without big inflation; Biden spending more was spending too much.

But I don't see the dollar getting weaker against the Euro nor the Yen, so it's not like there is an obvious alt currency for investors who don't trust US inflation.

However, if Russia & China combine to lead to an alt BRICS (incl. Brazil, India, South Africa) international payments regime, there might be a viable non-USD international alternative.

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Hunmeister's avatar

Excellent essay. Two observations:

1) Milton Friedman's money supply rules required stable money velocity. That broke down as the government deregulated the financial institutions. in the '80s Friedman and his disciples predicted inflation that never occurred because their basic equation no longer held.

2) Bernanke's biggest failure was not realizing that quantitative easing was making the Fed a giant S&L and providing to a way to unwind it.

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