US inflation of the 70’s never really died. Consumer goods inflation has declined due to imports, but has been replaced by asset boom/busts – ‘bubblation’.

The word bubblation just sounds silly, and so it’s a perfect choice for the way inflation is viewed today. Because consumer prices have grown at a slower rate since the 70’s, popular wisdom suggests that inflation is dead. This is accurate given the technical definition of inflation in practice today, reflecting ‘increases in the aggregate consumer price level’. However, the printing presses have been extremely busy since that time, and bubblation in asset prices has been occurring ever since the 80’s. We can think of bubblation as ‘inflation’ in asset prices, in a very non-steady trajectory, with booms and busts occurring around an increasing trend.

In the 80’s the money from the printing presses eventually chased real estate as the large baby boomer generation bought homes with the flush money and associated low interest rates. Real estate has bubblated since then; even with various booms and busts in between, overall price escalation has remained high. Just ask your grandparents what they paid for their home.

In the 90’s new money supply chased equities and bonds as boomers tried to catch up on retirement. Stock markets have bubblated since then as a result; even though we’ve seen major crashes since the 80’s, overall the values remain in excess of pre-80’s levels. The printing presses have continued to roll, financing imports and keeping long-term bubblation trends going in real estate, equities and most recently commodities such as gold, as fear has amplified.

In each case, if demographics alone were at play, we’d still have seen the same up-trends and following down-trends, reflective of relative demand shifts and even some speculation. However, the swings would have been far less pronounced and the long-term prices would not all have remained high long-term as relative demand boosts shifted across each area. When all prices inflate it is clear that relative price shifts are no longer the primary driver.

The continuous accelerated printing of money since the 80’s (see the True Money Supply measure produced by Murray Rothbard) has amplified the variation and severity of up and down swings. This is very simply an extension of the fact that money supply increases are indistinguishable from income to the public at large, and are utilized in precisely the same manner as income would be. For financial institutions in the centre of the money supply management game, it has been a fundamental driver in increasing their relative power and ability to take on risk, with money not their own.

The reason we haven’t seen ‘inflation’ as it is commonly defined, is due to the rise of the newly industrializing nations, that are undercutting prices and currencies in order to build relative market share and power in the longer-term. So overall, the inflation of the 70’s never really went away; we just built on it and transitioned it to the financial sector and beyond as bubblation. Based on ‘deregulation’ arguments stemming from an unrealistic belief in efficient markets, the financial sector secured an unprecedented level of power, supported by bringing governments along for the ride.

The financial crises took the public for a ride and the public gave the perpetrators the keys. The public and the government essentially gave the keys for the henhouse to the fox, because the foxes were thought to manage themselves, often through such innovations as SRO’s (self-regulatory-organizations). Hardly an innovation! After all is said and done, we now still have the markets bubblated to higher levels than before thanks to the printing presses, with a lot more volatility than necessary.

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