Tuesday, October 25, 2011

Sorry Inflationistas, But This Chart Proves You Wrong

It’s time for our weekly dose of graphics to drive home a point or two. This go-round, I’m taking aim at the Inflationistas.

You know, those fearmongers that have been trying to tell us that the end is nigh ever since the Fed embarked on its massive money-printing campaign. That prices for all sorts of goods and services – and interest rates – are about to skyrocket. And that our only salvation is not God, but the almighty gold bullion.

Can you tell I was never afraid of their prophetic declarations? Well, that’s beside the point.

What matters is that inflation – and certainly hyperinflation – has proved to be nothing more than a bogeyman.

And the charts I’ve selected for this week should serve as a nice piece of humble pie for all those Inflationistas. The question is, will they eat it?

Show Me, Don’t Tell Me

Take a trip down memory lane with me and you’ll recall a time not long ago – back in late 2009 – when the biggest story in the market was inflation. Almost every last soul was convinced we were on a crash course with higher prices and interest rates.

Warren Buffett, Jim Rogers and Alan Greenspan were all jumping on the inflation bandwagon, too. A pundit on Fox News went as far as declaring he was “100% sure” inflation is going to hit. And not just inflation, but hyperinflation.

And why not? Never in the history of the world had the Fed pumped so much extra liquidity into the market. When that happens, inflation always follows, right?

Well, not exactly.

As this chart demonstrates, inflation has proved to be no big deal. We’re not even close to matching any of the major historical spikes.

So what happened?

As I pointed out in a special webinar in 2009, everybody was ignoring the deflationary forces at work – like the collapse in housing, the contraction in personal credit and soaring unemployment. And that these forces were more than enough to offset the Fed’s inflationary actions.

Of course, the die-hard Inflationistas in the group have a knee-jerk retort. It’s a little ditty that goes something like, “Wait for it, wait for it, wait for it.”

I’ll keep waiting. Because in order to have inflation we need a wage-price spiral, wherein wages chase prices and prices chase wages. But that’s not possible when wages aren’t rising.

And they’re certainly not.

Bottom line: Runaway inflation is going to be like Lindsay Lohan at her court-appointed community service – a no-show. So don’t let the Inflationistas scare you. They’re wrong!


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Jim Rogers

Warren Buffett

Nouriel Roubini