Debt, inflation and purchasing power

Big hat tip to Karl Denninger of The Market Ticker for this chart.

No comments required.

This is the reason why inflation has a mathematical limit. You can only push inflation into a system for as long as underlying economic activity allows you to cover debt service. Since globally we are all on a US$ based fiat monetary system, we have to come to terms with the quantity of outstanding US$ credit and money worldwide. Ergo, this inflationary cycle has lasted over 80 years.

Another thing to keep in mind is that deflationary bouts within the overarching inflationary cycle would strengthen the purchasing power of currencies. However, at the end of a secular inflationary cycle, deflationary bouts will be resisted by unorthodox means such as Quantitative Easing – i.e. governments buying sovereign bonds from themselves rather than from each other – thus effectively destroying the currency.

As an aside, buying bonds from each other is not a viable solution either but that’s what the entire fiat monetary system is predicated on. In a fiat monetary system the conclusion is not in doubt and is inevitable. Governments can only hope to postpone the conclusion but not do away with it.

Once again, as in times past, when the monetary and credit systems are under serious stress, gold and silver bullion revert to their natural role of currencies.

Got bullion?


Tags: , , , , , , , , , , , , , , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: