Tuesday, August 16, 2005


We all know that inflation makes us poorer. But, the question is how does the government define inflation? Oil? Wages? I think this is the real conundrum. Before the fall of the Berlin Wall, when we still had a closed system, excess credit/money supply resulted in classic "inflation". Once 3 billion people (including India) became free to compete for the low paying jobs, and with the advent of the internet, all inflation numbers seemed low. It was a Goldilocks economy. But what about asset inflation? This is the $64,000 question. When stocks were going up 20% a year, inflation was "low". As real estate is going up 20% a year, inflation is "low". I think once the bubble pops, central banks throughout the world should readjust their measurements of inflation to include anything that decreases your purchasing power. It is my understanding that the CPI was adjusted so that home prices, stock prices, energy and food are not included. I think all of this will have to be reassessed. But as allways, there is no action without crisis first.



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