Feb

3

What causes inflation? Suppose we define inflation simply as the rise in prices of commodities, stocks, real estate etc. What causes it?

1) A generic explanation people offer (acolytes of Milton Friedman & Margaret Thatcher for example) is to blame monetary policy. Simplified as, inflation is caused by "too much money chasing too few goods."

Many people blamed President Trump's COVID stimulus packages for the rise of prices during that period. It seems specs in this list agree upon this when it comes to stock prices, i.e., lower interest rates (higher money supply) -> Higher stock prices (inflated stock prices).

2) An alternative explanation is that higher prices are caused by supply chain issues.

So they would claim that higher commodity prices were so because it was extremely difficult to move them around during lockdowns, let alone processing them in factories. A member also described that egg prices may be going up because of disease (a chink in the supply chain) not necessarily monetary policy. I am thinking that supply chain issues are more important to look at, than monetary policy.

Larry Williams predicts:

Inflation is very, very cyclical so maybe the real cause resides in the human condition and emotions. It will continue to edge lower until 2026.

Yelena Sennett asks:

Larry, can you please elaborate? Do you mean that when people are optimistic about the future, they spend more, demand increases, and prices go up? And then the reverse happens when they’re pessimistic?

Larry Williams responds:

Just that it is very cyclical— as to what drives the cycles I am not wise enough to know…though I suspect…some emotional pattern dwells in the heart and souls of as all that creates human activity—along the lines of Edgar Lawrence Smiths work.

Read the complete thread.


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