The Rate of Inflation

Inflation, properly defined, is an increase in the amount of currency available in an economy. The increase in prices that follows is not inflation, but a consequence of inflation. However, the devil has a way of corrupting language so as to obscure what's really going on, and we are now almost always referring to increases in prices as inflation.

To remedy this confusion we can use the term "monetary inflation" to mean the expansion of the currency supply, and we can use the term "price inflation" for the increase in prices that follows.

A further point of confusion when it comes to inflation is that price inflation comes with a delay to monetary inflation. There's also an imbalance in how prices change. Some things go up in price sooner than other things, as pointed out by Richard Cantillon back in 17th century France.

With most people having a short time horizon when it comes to cause and effect, many pointed out with glee that the monetary inflation that took place in response to the virus scare back in 2021 didn't result in price inflation on ordinary goods. Tech stocks, crypto currencies and NFTs went ballistic, but products in supermarkets remained relatively unchanged.

Now that prices are going up in supermarkets, the same short sighted crowd refuse to see any connection with the monetary expansion that took place two years ago. Two years back in time is by many considered ancient history, and any connection between events today and back then is considered impossible.

Adding to the confusion, monetary inflation has in fact been negative over the last few months. There was more currency slushing around in the economy a year ago than today. Why then are prices in supermarkets going up?

This leads us to the final point of confusion when it comes to the relationship between monetary inflation and price inflation. Most people see the two as either directly linked or not linked at all. The idea being that the 50% increase in the currency supply that happened during the virus scare should have led to a 50% increase in prices. However, this has not happened so it's either not going to happen at all, or we are in for just a little more price inflation before all the monetary inflation has been fully absorbed. Either way, we're not going to see prices going up by more than 50% from 2021 levels.

The error here is the assumption that price inflation is dependent solely on the quantity of currency available in the economy. It isn't. It's dependent on both quantity of currency and the rate at which transactions happen. Price inflation can therefore go higher than monetary inflation.

Here's a simple calculation to illustrate this point: Imagine a currency rotating in the economy at one transaction per week. If this rate remains constant, and we increase the currency supply by 50%, we will see 50% increases in prices pretty much immediately.

This is the simplistic view that is assumed by those wondering why we haven't seen this effect. However, people were scared during the virus scare. They didn't keep up their rate of transactions. The currency supply went up by 50%, but the amount of currency used in everyday transactions remained pretty much unchanged. Instead of going into the economy, the extra currency was saved for later. The rate of transactions went down.

Now that the scare has subsided, currency saved has entered the economy, and we're seeing price inflation. But there's no reason to believe that prices will top off at a 50% increase because the rate of transactions may accelerate from here on out. Once people sense that currency is best spent as soon as possible, the rate of transactions go up.

Going back to our example, we can imagine our currency rotating in the economy at two transactions per week. At that rate, prices will by average go up by 100%.

This may in turn prompt people to get rid of their currency even quicker, and a situation may arise where currency is immediately exchanged for goods. The currency rotates at one transaction every day, and prices go up by an average of 700%.

Price inflation can get out of hand even without monetary inflation, and there's some evidence to suggest that this is about to happen. Search interest for gold is on the increase. People are looking for something other than currency for their savings. An increasing number of people are determined to keep as little currency as possible as savings. They plan to spend currency on gold rather than saving it in a bank account.

If this happens at a large enough scale, we'll be back on a de facto gold standard, with currency only used for transactions and not used as savings. Economic planning based on currency will no longer be possible because no-one will know what a currency buys a year or two into the future. Gold will have to serve that purpose. Contracts will have gold clauses in them. Gold will even be used directly in transactions, at which point central banks will have to either send interest rates on bank accounts soaring to lure people back to saving in currency, or link the currency directly to gold so that it can again be used for economic calculations.

Sovereign

By Heritage Auctions for image, Mary Gillick for coin - Newman Numismatic Portal, Public Domain, Link

Like a Massive Slow Moving Weimar Republic

One of the things that happened during the inflationary era of the Weimar Germany was the sudden popularity of drag shows, queers and transsexuals. The central bank's debauching of money had translated into debauchery of sexual norms.

This might at first glance seem odd. However, the connection between money and norms are not as loose as it may seem. When money is debased, some people get the ability to do things that would've been impossible under normal circumstances. Normal valuation practices become irrelevant. All that matters is access to credit, and fortunes can be made. What would normally be seen as irresponsible behaviour becomes the smart thing to do. Reality is suspended. Anything goes.

The winners in a world where money is created out of thin air are the ones willing to do what would normally be seen as dangerous or outrageous. Material success becomes a matter of connections and a willingness to do whatever it takes to get hold of cheap credit.

People who are easily impressed by material success notice that low standards are rewarded. There's no God punishing those who break the norms. On the contrary, it's the norm breakers that are rewarded.

This decay of social norms continues for as long as money is created at will. It lasted for four years in Weimar Germany, from 1919 to 1923. If we include the war, it lasted eight years from 1914. However, the transsexuals didn't appear before after the war.

With transsexuals currently making a comeback in popular culture, we can assume that we're moving towards an end to the current inflationary era. However, things are moving at a slower pace, and the magnitude of what's happening is greater as well. We're not dealing with a single country. We're dealing with the entire western civilization.

The size of the western economy is the likely reason everything is moving at a slower pace. But hyperinflation is an exponential process so things will eventually move very rapidly. With financial markets being electronic these days, the speed of the final collapse will likely outpace the final days of Weimar hyperinflation.

Back in 2021, I pointed out the similarities between our current inflationary era and the Weimar hyperinflation. It seemed to me that 2021 was roughly similar to 1921. But here we are in 2023, and hyperinflation hasn't started. All we're seeing is a new golden age for transsexuals. By 1923, all of this had come and gone in Weimar Germany.

We've progressed less than a year relative to the pace of things back in 1921. All the signs are the same as they were back in Germany, but things are moving at a far more sluggish pace. However, there's no reason to believe that the current inflationary era will end differently. Once hyperinflation kicks in, we'll have about two years before a reset will be required in order to set things straight.

Wallpaper

By Bundesarchiv, Bild 102-00104 / Pahl, Georg / CC-BY-SA 3.0, CC BY-SA 3.0 de, Link

Negative Excess Deaths in March

Wikipedia has just published its notable deaths for March, and the numbers are encouraging. There were 714 overall deaths, and less than 19% of these were in people younger than 70 years. Severity adjusted, this March came out at less than 600. That makes it the least deadly March since before 2018.

The positive trend that started in February has continued. Young people are experiencing negative excess deaths, and older people are also recovering.

Notable deaths according to Wikipedia

Loss of Credibility

Back in 2020, when the first lockdowns hit, I said to my twin brother that this was going to go down in history as a pivotal moment. A new era was about to start, as I had predicted for years, and often talked about, all be it to deaf ears. The sign that I had been looking for had appeared, namely a monumental event hoisted upon us by a coordinated attempt to fashion a new normal. What lay before us was a battle of sorts, and its outcome would determine the trajectory of history for decades to come.

My brother, always the sensible one, found my views eccentric. He could see nothing sinister in what was going on. He very much doubted that the lockdown was anything but a sensible response to an existential threat. As a professional business advisor he felt it prudent to go along with all recommendations and mandates, and even go the extra mile and implement stricter rules than what was being suggested from politicians, journalists and health authorities. He quickly became an advocate for the new normal.

But the new normal never materialized. Anyone who took my brother's advice knows now that none of it was necessary. Much of it was harmful, and all of it was costly. I don't know to what extent my brother's reputation suffered from his bad advice, but I assume that his clients are no longer as impressed by his advice as they were up until the virus scare. His credibility has no doubt taken a hit.

A similar story can be told about a teacher at my son's school who prides himself on being something of a philosopher. Left leaning, with libertarian tendencies, the man has cast himself as an expert on fascist tendencies; how to identify them and how to fight them. But when push came to shove, he crafted a letter to all the parents recommending that all children be vaccinated. He didn't see the distinctly fascist nature of the virus scare. Needless to say, the man has lost much of his credibility due to this ill conceived letter.

Noam Chomsky, who is a philosopher of international standing, also left leaning and anti-fascist, made a similar mistake when he recommended self isolation of all unvaccinated people. He too had trouble identifying fascism when confronted by it, and he too has lost much credibility.

School boards and universities have similarly lost much credibility due to their mindless acceptance of the #Science. Vaccines were recommended and mandated. Masks were worn, and social distancing and self isolation was practiced. None of it was necessary, and all of it was harmful.

Astonishingly, hospitals in Portugal still require people to put on a mask before entering their premises. This is despite the fact that masks do not work, and can in some cases be harmful due to the way they capture fungus and bacteria right in front of our airways. An insistence on mask wearing is irrational and anti-scientific, and this irrationality is for some reason particularly strong precisely where you least want to see irrational behaviour.

Health bureaucrats seem to be particularly susceptible to magic thinking, and doctors and nurses don't seem to be any wiser. Why else have they gone along with the crazy stuff that is being insisted upon even to this day? It turns out that when their credibility were on the line, they all failed.

Our institutions are crumbling. People are loosing faith in journalists and politicians. A majority of people in the US now believe that journalists are more likely to deceive us than inform us. People's faith in politicians is at an all time low. By the looks of it, we're entering a new era, and it will be interesting to see what will rise from the ashes of the old one.

Parrots

By Jan Smith from Brisbane, Australia - Hello, hello! Uploaded by Snowmanradio, CC BY 2.0, Link

A Change in Attitude

My oldest son called to congratulate me on my birthday. It was a polite exchange as always with the usual small talk about savings strategies and plans for the summer. However, there was a change of tone in the exchange. He seemed more genuinely curious about my views. He even mentioned my theory on physics.

His change in tone was so subtle that I didn't fully catch onto it during our talk, and only afterwards did it dawn on me what it might signify. It appears that he has had some sort of realization.

Until recently, my son has been sceptical to the point of being dismissive of my non-conform views. Now, it appears, he's more open to what I've been saying. While he's retaining some healthy scepticism, he's not dismissing my views simply for being at odds with main stream dogma.

It appears that the insanity hoisted upon us over the last few years by institutional experts has finally broken my son's faith in authority, and he's now open to alternative views.

If this is in fact what has happened, it is evidence in support of my thesis that we're entering a new era. The progressives have worn out their credibility, and we're set for a return to open dialog and healthy scepticism towards institutional dogma.

The social contract

Naps and Two Sleep

I turned 59 years old a few days ago. That was celebrated by going to a seafood restaurant in Matosinhos, a coastal neighbour town to Porto, where I live. We ate well and I topped the meal off with a cup of coffee. It was late by the time we got home, so we all went to bed pretty much immediately. But four hours later, I was wide awake. My normal pattern of sleeping soundly through the night was broken. However, instead of fretting about this, I got up and spent the next hour and a half drinking tea and playing Spider solitaire on my PC. Then I got back into bed for another few hours of sleep.

This is the sort of things I can do due to my status as a retiree. I don't have to be up at a specific hour, and even if I were, I can always sneak in a nap during the day to make up for any lack of sleep during the night. But there's another reason for my relaxed attitude to this kind of occurrences, and that is the fact that waking up in the middle of night for an hour or two used to be the norm. There's nothing unhealthy or strange about it, and anyone bothered by it should simply give in to the pattern and do what I did the other night: Get up, do something, and then go back to bed once sleepiness returns.

The current norm, defined by about 8 hours of continuous sleep, 8 hours of work, and 8 hours of leisurely breaks of various kinds, is in fact a relatively new invention. The norm used to be a pattern more in tune with our biology. There's a natural dip after lunch, and there's a period of light sleep in the middle of the night. In the olden days, people would take naps after lunch and they would be up for an hour or two in the middle of the night.

This pattern made sense because houses used to have things that needed tending to every now and again. A fire place would need some maintenance every four hours. If we slept through the night for eight hours straight, the fire would be out, and that was a real problem before matches were invented. A household with animals would require regular inspections. Making sure everything is in order was an important part of daily life, and eight hours of sleep without a break doesn't fit that requirement.

A nap after lunch makes sense as well. The drowsiness we feel after a big meal is not something we should ignore. It's a signal, and it's a bit of a mystery that there hasn't been more research into the health benefits of such a nap. The reason no-one seems interested in researching it may be that naps are counter to the politically desired norm. A study that comes out in favour of naps will in other words be inconvenient for the elite who would prefer for the lumpen to remain in their current pattern.

The Social Contract

Increased Search Interest for Gold and Silver

It appears that the bank crisis we've been having has been something of a wake up call to savers. They've seen that cash held in banks can become inaccessible. They also understand that cash can be destroyed by inflation. With interest rates well below inflation, it isn't wise to keep all our savings in banks.

This is clear from a sudden surge in search interest related to gold and silver. It's also clear that people remain sceptical to risk, with both Bitcoin and Tesla seeing subdued search interest.

I remain confident in my prediction that Bitcoin is headed for another leg lower despite an impressive start to the year. I'm also confident that we'll see gold push through resistance at the $2,000 to $2,100 level, and that $3,000 is going to be reached within a year after that happens.

Things are becoming increasingly fragile and unstable, and this is now so evident among savers that it's affecting the supply of physical gold. My local gold store has only a few gold products on display. What's on offer is evidently being sold at a steady brisk pace.

Sovereign

By Heritage Auctions for image, Mary Gillick for coin - Newman Numismatic Portal, Public Domain, Link