Imagine a situation where critically important economic variables such as inflation and money supply were measured inaccurately by just about the entire investment community. This mis-measurement then led to poor investment decision making on a grand scale. Well, I would submit that this is exactly the situation we face today with erroneous inflation and money supply data in use.
Accurate measurement of price inflation is a critical element of investing and yet there are deep flaws in the way inflation is measured. The traditional CPI is a false measure of price inflation. I discuss this and more appropriate ways of measuring price inflation in the articles below.
The relationship between inflation and money supply is also deeply misunderstood. Economists of the Keynesian bent tend to ignore money supply data altogether, while the Monetarists believe in a simple linear relationship between inflation and money supply. Despite the fact that both these viewpoints are manifestly WRONG; they continue to be widely held.
In conclusion, the whole topic of inflation and money supply is misunderstood from top to bottom. Not only are the variables not measured correctly, but the relationship between the variables is not understood. This represents a serious flaw in the ability of individuals to assess the economic situation and make intelligent investment choices as a result.
I undertake money supply analysis through examination of total commercial bank liabilities in domestic currency. The rate of commercial bank lending explains the business cycle better than traditional measures of the money supply. Further analysis, conducted into the composition of bank liabilities, reveals the predominance of business lending over other types of lending up to [...]
Economists, investors and politicians around the world rely on an accurate measure of price inflation to aid decision making; but does the CPI measure inflation correctly? Having looked into the matter, I have been struck by the inadequacy of the CPI to measure inflation and the resulting distortions in decision making that the CPI produces.
The perception of a straight linear relationship between the money supply and inflation is not backed by theory or practice. The true relationship is captured by measuring monetary growth NOT BACKED BY ECONOMIC GROWTH, rather than monetary growth alone.
We live in a period of inflation, but do you have an inflation investment strategy to take advantage of it? After defining inflation, we’ll discuss the best investment strategy to take advantage of current conditions and the dangers that may lie ahead. Flexibility is key in what are rapidly changing conditions. CPI Doesn’t Measure Inflation [...]