The fifty-some year inflation cycle is as obvious as night and day if people bother to look at economic history and at price and interest rate charts or tables for the past 50-200 years in the US and Europe. But since people never have, nor do so now, they have to look for demons and scapegoats and heroes for inflation and deflation. That being the case it's worthless to read anything most people say about inflation. If they are investment people you can be sure they are fools and not to be trusted in any way in making your own plans and decisions.
There are only three public figures, and a very few privately, I have ever read or heard speak who seem to have a clue about the cycle or were willing to discuss it. The best of the three was Hermann Kahn who wrote about it cogently in his fine book of 1982, "The Coming Boom" which predicted pretty much what happened up to 2000. Too bad Kahn died before his time as he was always a light in the intellectual darkness. Judging by their investment timing and some judicious hints, I think that investment gurus Jim Rogers and Marc Faber also understand and follow the inflation cycle. I exchanged faxes with Faber about it ten years ago when he had so brilliantly predicted the deflationary plunge of 1997-98. The market economist Gary Shilling was also a believer at one time, although I know little about his subsequent history. Many of the people who were interested in the 1970's got hopelessly out of synch with the cycle in the 1980's and 90's and wrote a lot of gloom and doom balderdash which discredited the whole field of economic cycles. John Mauldin's letter this week is a good review of the current situation and has some comparisons with the 1970's and 80's. I have been reading his letter for years after providing an email address, and I have NEVER received anything else at that email address. So I feel secure with his privacy policies. I don't think he is necessarily a devotee of the inflation cycle but he has some interesting things to say.
The bottom line from my perspective is that major inflation "began to end" in the mid to late 1970's with major plunges from 1980-82 and from 1996-1998/99 and ended between 1998 and 2003 in various sectors and geographical regions. I have written about this in the Economic Long Wave section of the blog. We have now been in some form of inflation since at least 1999, and historically we should have another ten to fifteen years of it. Naturally it is not steady inflation in the way that a heavy freight train moves, but is more like the start and stop of commuter automobile traffic. Inflation is headed up but will take some detours and wait for congestion, sometimes making us doubt we'll ever get to work or back to our home. So far, interest rates have been mild, and that has been a problem in stoking inflation perhaps more than might have been the case. That will be changing drastically as soon as recession is discounted. But basically all inflation is due to demand overwhelming supply for whatever reason. Due to the inertia of humans in getting things conceptualized, planned, financed and done, it takes quite a long time for supply to catch up with demand, and much of it doesn't start happening until prices stay up for a protracted period of time. Similarly, over-production doesn't immediately cease at once when demand is sated. It tales a while for people to believe inflation is done with (1980's) and a longer time for facilities to run down and or become obsolescent as demand keeps falling (1990's). The crude oil business was a classic example of this as was the gold business in the 1980's and 90's. Finally supplies fell to levels which didn't justify investing in them, and very quietly in 1998 and 1999 as the headlines bemoaned deflation forever, demand picked up a bit and prices began to rise. We know all the rest. Paul Krugman's "The Return of Depression Economics" of 1999 was emblematic of wrong thinking at the gloomy bottom.
The answer is not to look for people to blame, because we are all to blame, as human beings, for the great waves of inflation and deflation. We "do it to ourselves." The main reason to know about it is to get our economic lives synchronized with the cycle. It can be a reason why we choose a career, and should certainly guide our investments, where to live, and most major economic decisions of a lifetime should be made with the inflation cycle in mind.
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