There’s a lot of talk right now about inflation and whether it’s here to stay or “transitory”. Here are 6 things you need to know about how to assess this situation.
1st thing you need to know: when you hear that inflation is “transitory”, that means that the inflation is going to go away, but prices will still remain higher (forever). It just means the rate of increase is going to decelerate, which it most likely will.
2nd thing is that, when you hear it said that high inflation is caused by supply and demand, you need to realize that inflation is always caused by supply and demand. In the U.S. in the 70s it was caused by a shortage of oil. Supply and demand creates all prices. So saying it’s about supply and demand isn’t really saying anything, other than trying to distract and calm people down, which brings me to..
3rd thing is that the Federal reserve really really wants us to think that it’s transitory. That’s because part of their job is to manage perceptions. Why do they need to manage perceptions? Because the dollar is unlimited and based solely on perception (I would call it more like delusion); so it could theoretically devalue very quickly if perceptions shifted.
4th thing is that in spite of all that talk, the Fed continues to spur inflation by pumping $120 Billion per month into the economy (really, into rich people’s coffers).
5th thing is that whether or not there is short term high inflation isn’t particularly important. In the long term, there’s a lot, and this is all you really need to know:
6th thing is that the way the fed measures and reports inflation changes over time, because they also control the metrics by which it is measured. For example, they do things like remove items from the index. or include “hedonic adjustments” (which are about as honest as the term sounds). Here is the rate of inflation if you hold them to the way they used to measure it in 1980:
In other words, prices increase more like 10 percent year over year, rather than 2-3.
IN CONCLUSION the dollar goes down like it always does, probably faster right now than usual, and maybe it will slow it’s descent or maybe it won’t. But it doesn’t really matter. It will end the same way every fiat currency has ended, eventually.