Tuesday, December 06, 2005

Imagine A $5 Gallon of Milk Costing $100 Billion In 2007! - Saxena.

Red Alert - Monetary Flood!
Puru Saxena
6 Dec, 2005

INFLATION - Previously, I talked at length about the definitions of inflation and deflation so I won't go into this subject in great detail. All you need to remember is that inflation is an increase in the quantity of money whereas deflation is a decrease in the quantity of money. And, despite what you hear on your local T.V. or radio show, we are living in highly inflationary times. How do I know? Easy - simply take a look at the rates of money supply growth over the past year -

Australia + 9.8%
Britain + 11.2%
Canada + 9.8%
Denmark + 16.3%
US + 7.3%
Euro zone + 8.5%

Central banks around the world continue to print money like there is no tomorrow. And what option do they have? The "developed" world is now plagued with a ridiculous amount of debt. For example, the total American debt is roughly US$40 trillion whereas the size of its economy is around US$11 trillion. So, the debt to GDP ratio is over 350%! Similar imbalances can be seen in most advanced countries where households and governments are choking on debt. In the current scenario, the easiest way for nations to make this debt easier to handle is through inflation. You see, inflation makes debt less formidable as the money you owe today loses its value (purchasing power) over time. So, the hundred dollars you owe today don't "feel" like a hundred dollars when you repay your debt five or ten years later.