Sunday, September 13, 2009

Inflationista/Deflationista Revisited

John Mauldin has devoted his last two missives to The Elements of Deflation. You can find his latest missive here. This last missive helped solidify for me my lay understanding of what I believe is an important issue for money stewardship.

You've no doubt been assaulted in the news about the inflation that is about to overtake us. I remember talking to an investment professional (friend) about 2 years ago, and he was quite certain that inflation was right around the corner. For the life of me, I could not see it, and I certainly didn't place any bets on it. What I have been looking for is the toggle that moves us out of deflation and into inflation.

Mauldin answered that question for me in this missive, and it centers on the velocity of money. All the money printing in the world (and I've stated that the problem has always been larger than any Central Banker's wad) will not give rise to inflation until the velocity of money increases. It's a nice mental model to give some purchase to thinking about deflation v. inflation. I guess that is a bit of a forehead smacker (doh!) moment--but I'll take those. Given that I've written about this in the past (and my recession call was spot on, though some called me a recessionista). Now, I'm just an evangelista, pointing you in the direction to read information that is unbiased and well presented.

If you do not get Mauldin's letter, consider signing up for it. It is delivered in your e-mail, and he always has thought provoking material. As I'm not an economist nor do I play one on TV, I appreciated complex information being broken down. Wrapping my head around this deflation/inflation thing has been of paramount importance to me.

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