Contact us
CALL US NOW 1-888-GOLD-160

Could They Have Been More Wrong About Inflation in 2020?

  by    0   0

I recently ran across a video produced by CNBC back in July 2020. It is titled “Why Printing Trillions of Dollars May Not Cause Inflation.”

That aged poorly, didn’t it?

And people wonder why I keep saying you should be skeptical of mainstream narratives.

The video was produced at the height of pandemic stimulus and money creation. The video notes that the Fed’s balance sheet had eclipsed $7 trillion. That was still nearly $2 trillion less than the peak at just below $9 trillion. Even today, the balance sheet remains north of $8 trillion.

The narrator begins by pointing out that some economists were worried about inflation, and she plays a clip of an economist quoting Milton Friedman, who said, “Inflation is always and everywhere a monetary phenomenon.” But the narrator goes on to assert that we really didn’t need to worry about inflation.

Supply shocks have driven up the price for some goods over the past few months. Yet recent history suggests inflation is more likely to stay low for a long time…”

Ironically, the economist who quoted Friedman later boldly proclaims, “The idea that there’s going to be an outbreak of inflation, you know, 4 percent, 5 percent that is just not on the horizon.”

And I bet that economist still has a job.

Fast forward to today — low price inflation? Not so much.

Price inflation remains stubbornly high three years after CNBC produced this video.

Definitions Matter

The problem with the video is it misdefines inflation as “an increase in the prices of goods or services over time.”

This definition of inflation muddies the water (and that’s on purpose).

The proper economic definition of inflation is an increase in the amount of money and credit — or put another way, an expansion in the money supply.

Price inflation, as Friedman alluded to, is a consequence of monetary inflation.

When you use more precise definitions, it immediately reveals the absurdity of this video. It is trying to make the case that inflation doesn’t cause inflation.

This was the generally accepted definition of inflation as late as the 1980s. But over the years, the government, along with its apologists in the corporate media and academia, altered the definition to suit government purposes. They methodically conflated monetary inflation and price inflation until there was no distinction between the two. The standard definition of inflation bandied about today is nothing more than government propaganda.

Economist Ludwig von Mises explains the problem with this change in definitions.

“People today use the term `inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.”

This video proves Mises’ point.

You Could See Price Inflation Coming Like a Freight Train

It’s true that monetary inflation doesn’t always manifest in price inflation. This was the case after the 2008 financial crisis. Despite three rounds of quantitative easing and a nearly $4 trillion increase in the Fed balance sheet, price inflation as measured by the CPI remained relatively tame. But that doesn’t mean there was “no inflation.” There was a massive surge of inflation to the tune of nearly $4 trillion. (Really a lot more than that when you factor in the credit expansion thanks to artificially low interest rates.) However, due to other economic factors, it didn’t primarily manifest as price inflation. Instead, we saw inflation of asset prices such as real estate, the stock market, and even art.

And the fact is, we don’t really know how the money printing after the 2008 financial crisis impacted consumer prices. Economic theory simply says monetary inflation will lead to prices across the board being higher than they otherwise would have been. Had it not been for the massive injection of money into the economy, we might have enjoyed lower prices instead of “moderate” price inflation. We’ll never know.

Regardless, the fact that CPI didn’t surge after the Great Recession monetary stimulus gave Keynsian economists married to theories rooted in “aggregate demand” a false sense of security. The video claimed, “Economists say there’s been a break in the link between money creation and inflation in recent years as the banking system has become more complex.”

Sorry. Complexity in the banking system doesn’t supersede economic laws.

The video does make a legitimate point. Money created by the Fed doesn’t go directly into the hands of consumers. It is added to bank reserves. It only circulates into the broader economy if banks choose to lend. If the newly printed money stays in the financial system it won’t show up in CPI. Instead, the inflation will manifest in asset markets as it did after the Great Recession. We even saw this in the latter part of the lockdown era as the stock market rallied despite the economy still effectively shut down.

But a lot of the pandemic-era stimulus went directly to consumers. There were generous unemployment benefits, direct stimulus checks, and all kinds of loan programs. It was pretty obvious that this monetary inflation would quickly bleed into consumer prices. And yet, virtually everybody in the mainstream missed it. Even after it started showing up in CPI, everybody swore up and down it was “transitory.”

It’s not that they were wrong. They were wildly wrong. Like, not even in the ballpark.

And economics told them it would be wrong.

Sadly, a lot of economists don’t seem to really understand economics. This is what happens when everything revolves around mathematical formulas and “observation” devoid of sound theory.

This video should give you pause when you hear the same talking heads on the same networks insisting the economy is strong, there won’t be a recession, and the Fed has won the inflation fight.

Download SchiffGold's Gold vs GLD EFT's Free Guide

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

What Gold Mining Companies Are Telling Their Investors

The most direct way to invest in gold is to buy gold and as SchiffGold advises the smart way to buy gold is to buy gold coins or billions. Sometimes investors bullish on the long-term prospects of gold take a look at the stocks of gold mining companies. Stocks of course lack some of the most attractive features […]


Biden Blames Retailers for Inflation Created by his Policies

On Super Bowl Sunday, President Biden took to X (formerly Twitter) to skewer consumer brands for “shrinkflation,” a phenomenon where product vendors reduce package sizes without proportionally reducing price, in what essentially amounts to a per unit cost increase for consumers. The video explicitly calls out popular snack brands such as Breyers, Gatorade, and Tostitos— all food […]


Currency Chaos: A Look at the Lira, Argentine Peso, and Ruble

It’s already looking like it could be a dramatic year for the US dollar, and a good time to check in on a few of the major troubled currencies around the world: the Turkish Lira, Argentine Peso, and Russian Ruble. 


The Gold/Silver Ratio Says Silver’s Still Cheap

The silver price has dipped since December, from almost $26 per ounce to around $22 today. We reported on silver being a relative bargain at the time, and with lower spot prices and an even higher gold/silver ratio today, gold’s monetary sibling is looking like an even more attractive buy than it was late last year.


The Politicos Trading Gold Stocks

When members of Congress aren’t passing laws, holding committee meetings, or more cynically fundraising endless dollars, some of them choose to pass the time by trading stocks. And for whatever reason, keen insight or perhaps insider trading, members of Congress tend to beat the market.


About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
View all posts by

Comments are closed.

Call Now