“I’m Favouring Equities and Gold Over Bonds” – Stepek

Tuesday, October 2, 2018
By Paul Martin

By: GoldCore
Tuesday, 2 October 2018

– We’ve spent our entire lives in a massive economic anomaly

– A growing population gave us fiat money and an exceptionally inflationary five decades

– We’ve unleashed the fiat currency genie from the bottle

by John Stepek of Money Week

For most of history, inflation wasn’t really an issue.

Prices went up and down, but mostly were flat or only rose very gently over the very long term. And by long term, I mean centuries and even millennia.

Then along came the 20th century, and the latter part of it in particular.

Let’s just say that, when it comes to inflation, we made up for lost time.

An exceptionally inflationary five decades

I’ve spent a chunk of this week poring over the latest Deutsche Bank Long-Term Asset Return Study, from Jim Reid and his team. Every year, they look back at historic returns and focus in on a few topics. This year, it’s all about inflation, and it’s fascinating.

The key point they make is this: we’ve been living through a unique period of financial history.

“The 1950-2000 period is like no other in human or financial history in terms of population growth, economic growth, inflation or asset prices.”

In other words, the only economic environment that almost all of us alive today have ever known, is a whopping great historical outlier.

For example, between 1800 and 1938, consumer prices in the UK were pretty much flat. Since then, they have risen 50-fold. In the US, from 1800 to 1913, prices rose by about 52%. Since then, they’ve risen 24-fold. It’s a similar story in other nations, with Brazil being the worst-hit since 1900 and Switzerland the least inflationary.

So inflation has positively exploded during all of our lifetimes. And not just general price inflation – asset prices have surged too.

What is this down to? Reid and his team conclude that at its root, this is down to rampant population growth.

From 5000BC, it took the global population 2,000 years to double; it took another 2,000 years for it to double again. There weren’t that many of us, and lots of us died very young, so it took a long time for the population to expand.

Fast forward another few centuries, though, and it’s a different story. As a result of the Industrial Revolution, lifespans and survival rates improved – the population doubled again in the period between 1760 and 1900, for example. That’s just 140 years.

Yet that pales compared to the growth we’ve seen in the 20th century. Between 1950 and 2000 – a mere 50 years – the population more than doubled, from about 2.5 billion to about 6.1 billion.

How a growing population gave us fiat money

So what impact did that have in inflation terms? To cut a long story short, it put a great deal of pressure on the monetary system. Under the gold standard, the money supply could only grow very slowly compared to the volume of goods and services available.

That means you get deflation. (Very, very simple illustration: say you’ve got ten apples one year and a gold money supply of ten ounces – each apple sells for an ounce. You then have a productivity miracle and you get 20 apples the next year, but you don’t mine any more gold. So each apple would sell for half an ounce.)

The Rest…HERE

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