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The whole idea of whether or not gold or oil or some other commodity is an
"inflation predictor" is, IMO, missing a more important point..... 1)
"Inflation" as it is classically defined has to a great extent become
history due to: a) post-Friedman central bank monetary growth controls
Worldwide b) Greater levels of fiscal controls, especially the ERM standards
which the entire world now effectively has to shadow c) the "New Paradigm"
of the business cycle which is that, instead of "boom bust", we now have slow
growth & soft landings, meaning that as a cycle ages, interest rates have to
FALL to continue to stimulate demand (exact opposite of having to rise to
choke off an inflation boom in the pre-Friedman era ). BOTTOM LINE: The
likelihood of any sort of threatening "run-away" inflation is practically
zilch.
MORE IMPORTANTLY, instead of using the term "inflation" to describe the
inferences of price increases in commodities, we should substitute "economic
expansion".... simply stated, an economic expansion (USUALLY) implies, or at
least threatens an Increase in DEMAND FOR CREDIT, which all else equal
implies rising interest rates... REGARDLESS OF "INFLATION". This scenario
is further complicated by the fact that as an economy expands, MORE CREDIT
BECOMES AVAILABLE - as profits and wages are deposited in the local lending
institutions. If credit is expanded at a rate equal to or slower than those
deposits, interest rates can actually fall in the face of rising economic
activity.... EXACTLY what we've seen in the United States since the 91-92
recovery began. It's not inconceivable, that as Asia revives, their lending
system will dole out credit very prudently (in contrast with recent years
past), and over time interest rates can decline even as their economies
revive.
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