A Couple Things About Inflation

Inflation is in the news, but there are a couple of things about inflation that don't get much coverage. Let's start with the trope that inflation is always a monetary phenomenon. Actually, no.

When nutrient-rich soil and freshwater reserves are depleted, crop yields decline and as human population and appetites for animal protein soar, food becomes scarce. When food becomes scarce, prices rise accordingly. It doesn't matter what you do with money supply, prices will rise in relation to everything used as "money:" gold, shells, paper with colorful pictures printed on it, giant stone disks, quatloos, cryptocurrencies, etc.

You could eliminate "money" entirely and the relative cost of food would rise even in a barter-only system.

What few seem to grasp is that there is a hierarchy of needs that ruthlessly separates "needs" from "wants," and the value of "wants" quickly drops to zero in real scarcities. When you're hungry, I mean really hungry, the value of your yacht, collectible muscle car, NFT, etc. falls to zero if those with food have zero interest in your "valuables." An ounce of gold for an egg? It all depends on what's actually a need.

In a similar fashion, real scarcity separates phantom intangible assets from real assets. If you glance at the chart of tangible and intangible assets below, you'll note that phantom intangible assets are now the overwhelming majority of what's laughably called "assets."

You want to trade your shares in XYZ Corporation for a 50-pound bag of rice? How do I know the "value" of shares in XYZ Corporation won't be zero tomorrow? No, thank you. Come back when you have something tangible and tangibly useful (i.e. it will hold its value tomorrow) to trade for the rice.

We inhabit a fantasy world in which scarcity has been banished by the gods of globalized markets and phantom assets built on sandcastles of leverage are the most valuable assets on the planet. Global stocks are now worth $115 trillion, woo-hoo.

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Disclosures: None.

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