Inflation and hyperinflations: An overview

One of the primary goals of Hinde Capital is preserving and increasing investors’ purchasing power.  This is why Hinde Capital’s inaugural fund – Hinde Gold Fund – was one focused on gold.  When central banks are printing money and debasing currencies, hard assets and financial assets are generally preferable to holding cash.  Inflation is currently low.   When inflation takes off, financial assets will start to suffer, and hard assets will do best, eg commodities, gold, etc.

Global asset markets have rallied strongly for the past four months. This has been driven largely by money printing and increases in the size of central bank balance sheets.   The three main central banks in the world continue to expand the size of their balance sheets.

As well, the balance sheets of central banks have increased over 20% year over year.

Central banks have kept interest rates far below inflation. As well, they have printed money to buy government bonds.  Central bankers argue that they can withdraw the liquidty as quickly as they created it.  Sadly, history is not on their side.

 

Currently, because investors are deleveraging, all the money printing is serving to make stock markets go up, but when velocity rises, which it will inevitably, central banks will have a much harder time withdrawing all the liquidity they have created.

 

Last year, I co-wrote Endgame: The End of the Debt Supercycle with John Mauldin.  In the book, we looked at how central banks are printing money and how this might end.   This post is a summary of the ‘bible’ on hyperinflations, Peter Bernholz’s Inflation and Monetary Regimes, which is a great overview of the follies of governments and central banks.

 

In the next post, I will explain why we aren’t experiencing either a large deflation or a high inflation right now.  We’ll look at velocity and how it is likely to evolve going forward.

 

You can find the chapter here;  I hope you enjoy reading it.

 

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