Could inflation bite back?

Oct 29, 2013

In her new book Professor Brigitte Granville warns governments not to think of inflation as yesterday's problem. Present unsustainable levels of public debt could end up leading to high inflation – especially in the Eurozone.

Today's global economy, with most developed nations experiencing very low , seems a world apart from the 'Great Inflation' which spanned the 1960s through to the early 1980s.

In Remembering Inflation, Professor Brigitte Granville, from Queen Mary University of London's School of Business and Management, fears there is a real danger of such times being forgotten in the wake of the of 2008 and the ensuing 'balance sheet recession' (that is, falling output caused by excessive debt).

Professor Granville, who specialises in international macro and monetary economics, comments: "The 'dragon' of inflation has been tamed in recent decades largely thanks to the breakthroughs in economic thinking which are the main subject of my book; but although high inflation is not a feature of today's economic landscape, policymakers should keep learning the lessons of that past experience in order to address the far-reaching economic problems that we are now confronted with."

She argues that the core challenge of restoring healthy growth might be facilitated by using the proven techniques of inflation targeting based on credibility (credibility being the essence of fiat money) to target a rate of inflation that is higher than present rates but does not risk getting out of control. For example, in the UK in the last few years, inflation has been allowed to run above the official target. For all the benefits of this in cushioning the economic downturn, the risks would be reduced by explicitly targeting this higher inflation level.

As Professor Granville says, "You need to give people clear and transparent messages so that you can manage expectations. If you don't then people won't trust governments or the central banks anymore. This is better for businesses so that they can plan for the future as they know the levels of inflation."

Her book looks at the causes of inflation, and the relationship between inflation and other fundamental macroeconomic phenomena such as growth, unemployment and – above all – . She shows how unsustainably high levels of government debt very often lead to high inflation. At present, this problem is particularly acute in the Eurozone, says Brigitte Granville adding that "The euro countries are caught in a debt trap. Unless the Eurozone breaks up in an orderly fashion before matters come to a head as a result of year upon year of economic stagnation (and the best way for that break-up to happen would be for Germany to leave), the troubled countries of the periphery – including France – will end up having to default on their either by formal restructuring and/or by high inflation."

Explore further: Researchers detect B-mode polarization in cosmic microwave background

More information: www.busman.qmul.ac.uk/staff/granvilleb.html

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User comments : 12

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Lurker2358
1 / 5 (12) Oct 29, 2013
I want a diversified current which is tied to a portfolio of raw materials and food stuffs.

For example, the currency would be defined in terms of what is current bought and sold as stocks, but not variable.

The currency would derive 1/40th of it's value from each of several materials and food products.

Metals
2.5% = Value of Gold per unit.
2.5% = Value of Silver
2.5 = Copper
2.5 = Platinum
2.5 = Iron
2.5 = Aluminum
2.5 = Nickel

Foods
2.5 = Corn
2.5 = Wheat
2.5 = Sweet Potato (it's the #1 super food)
2.5 = Sugar (any source, Cane is an excellent alternative energy source)
2.5 = Oranges
2.5 = Beef (use a specific cut as metric for meat)
2.5 = Pork ''
2.5 = Poultry ''

Other Raw Materials and construction products
2.5 = Pine Lumber (use certain board-foot metric, this is primary framing material)
2.5 = Concrete (basic mix, density to be determined)
2.5 = Cotton

Energy
2.5 = Oil (some appropriate grade)
2.5 = Coal
2.5 = Uranium
2.5 = Methane

etc, etc
Lurker2358
1 / 5 (12) Oct 29, 2013
By linking all of these things, which often have opposite behavior in the market, it will prevent fluctuations in pricing and will prevent "spectator" investments. the value of the currency on things that really matter will never change, because their value would be set as part of the definition of the currency.

It's like the Gold Standard, except that it's a "Diversified" standard, intended to automatically balance and smooth out market bubbles by preventing false inflation of certain goods prices due to panic investing or panic sell offs, such as Gold vs Oil and other irrational nonsense.
dav_daddy
1.3 / 5 (12) Oct 29, 2013
There are several things wrong with your proposal.

1. Your currency fails to take into account Intellectual Property, Services of any sort, amount and types of sovereign debt.

2. Currency in its simplest form is a promise from an issuer that the piece of paper they issue can be exchanged for an amount of goods and services upon demand. You may as well decide to assign your currencies value based on the average body fat ratio of the citizens, or the number of child berths the prior year.

My point being that valuing a currency on factors that are loosely related to what a currency represents (see 1st sentence of #2 above)
ryggesogn2
1.9 / 5 (13) Oct 29, 2013
Commodity prices reflect inflation.
Inflation is the devaluation of the currency caused by govt putting more into circulation, printing more money if you will.
Gold is a useful commodity for money as it is rare, doesn't deteriorate and has a cost associated with its production and storage.
Somalia used a certain denomination bill as its currency and its values was the cost of its production. Anyone could print their own, but its value was the cost of its production.
I understand Lurker's concept, but it will have the same problems as other fiat currencies. Namely manipulation by govts.
egold was/is a good idea as the currency is valued in quantities of gold. A similar concept could be applied for other commodities, BUT, there must be real, provable assets to back up the value of currency and must be redeemable at any time for that asset.

Zephir_fan
Oct 29, 2013
This comment has been removed by a moderator.
rwinners
5 / 5 (1) Oct 29, 2013
Inflation.... It will bite back, sooner or later. The Eurozone will be a bit worse off than the US, simply because their fuel costs will rise more than ours.
Timing is the only uncertainty.
rwinners
not rated yet Oct 29, 2013
Commodity prices reflect inflation.
Inflation is the devaluation of the currency caused by govt putting more into circulation, printing more money if you will.
Gold is a useful commodity for money as it is rare, doesn't deteriorate and has a cost associated with its production and storage.

Yes it is... as to gold. But gold is also quite effected by world emotions. I won't explore that!
Actually, all monetary units are subject to periodic price displacement.
If one buys a indestructible commodity which has high value to volume basis, one will survive long time in this world's economy. If..... that person buys at the right time and age... and sells at, simply, the right time.
Good social psychologists could trade commodities.. if they also love gambling.
Shakescene21
1 / 5 (2) Nov 03, 2013
It's interesting that Prof. Granville thinks that Germany needs to leave the Eurozone so that "the Eurozone breaks up in an orderly fashion". This is the opposite of the German position that the weakest members may need to leave so that the remaining countries can maintain a sound Euro.

Continental Europeans hate it when the British tell them how to manage the Euro, especially because some Brits love to remind them that the British stayed out of the Eurozone. (I agree with Granville.)
VendicarE
2 / 5 (4) Nov 04, 2013
"Your currency fails to take into account Intellectual Property" - Day Daddy

That is good, because there is no such thing as "intellectual property".

kochevnik
1 / 5 (4) Nov 04, 2013
The inflation is offset by channeling market bubbles into specific sectors, like the housing bubble. These toxic assets are then recollaterized and marked AAA by America's rating whores like Moodys and sold to investors and pensioners. Inflation is delayed due to massive banking fraud, fueled by endless expansion of debt. This will not end well
kochevnik
1 / 5 (5) Nov 04, 2013
The more the zionists print, the more they incentivize fraud. They can only create debt, not credit as the money is backed by nothing more than oil and the USA's predisposition to murdering and stealing with their Military Industrial Complex. While prices at the shop are growing, bank balance sheets are imploding at a far faster rate. The latter are invisible. Quantitative easing is DEFLATIONARY as the nexus of fraud it attracts invariably causes crisis like Greece. The FED $ is not collateralized by anything other than Collateralized Debt Obligations, better known as toxic assets or fraudulent bullshiyte. The thing that perpetuates Security State USA is oil, and the Military Industrial Complex used to TAKE that oil

USA outputs more oil due to fracking, but fracking only yields a temporary boost in production. Many fracking wells are already down 90% from their peak production and will continue to dwindle
kochevnik
1 / 5 (3) Nov 04, 2013
USA has deteriorated so much that the Gini coefficient index, used to measure wealth inequality, is growing higher than Brazil. Brazil was always the test case for inequality in the Western media. Now it has more opportunities than National Security State USA

Now with peak oil shocks Europeans are buying more bicycles than cars!
kochevnik
1 / 5 (3) Nov 08, 2013
Look at Americans downvoiting INEVITABILITY of my claims. No rebuttal only silence as destiny awaits their collapsing debt empire. Gold and bitcoin are surging. BTC now $344 as China and India realize Jewish banking is a ponzi scheme. Americans will drown in their worthless debt paper. Pathetic

Americans should rebut my claims and restore their greatness