{"id":33219,"date":"2012-10-31T00:33:03","date_gmt":"2012-10-31T04:33:03","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/10\/inflation-is-the-reason-you-should-bet-against-central-banks\/"},"modified":"2012-10-31T00:33:03","modified_gmt":"2012-10-31T04:33:03","slug":"inflation-is-the-reason-you-should-bet-against-central-banks","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/10\/31\/inflation-is-the-reason-you-should-bet-against-central-banks\/","title":{"rendered":"Inflation is the Reason You Should Bet Against Central Banks"},"content":{"rendered":"

By MoneyMorning.com.au<\/a><\/strong><\/p>\n

Central bank money-printing \u2018will destroy the world\u2019.<\/p>\n

Contrarian investment expert Dr Marc Faber, who writes the Gloom, Boom and Doom Report<\/em> newsletter, came out with that one in a recent interview with Bloomberg<\/em>.<\/p>\n

It sounds extreme. But he might just be right.<\/p>\n

Here\u2019s why \u2013 and what you should hold onto to protect yourself in the meantime\u2026<\/span><\/p>\n

\u00a0A Debased Currency Leads to Social Upheaval<\/h2>\n

The idea that central bankers could destroy the world might seem a little strong. But they can certainly do a lot of damage to our social fabric.<\/p>\n

In recent decades, as central banks have slashed interest rates and blown bubbles, we\u2019ve lived through what Dylan Grice of Soci\u00e9t\u00e9 G\u00e9n\u00e9rale <\/em>describes as a \u2018credit hyperinflation<\/a>\u2019 \u2013 possibly the \u2018largest credit inflation in financial history\u2019.<\/p>\n

While this inflation<\/strong> may not have shown up in consumer prices (so far), it has certainly shown up in asset prices.<\/p>\n

Who benefits from rising asset prices? The people who have the most assets \u2013 the wealthy. This in turn has driven up wealth inequality to historic levels.<\/p>\n

Record numbers of Americans are receiving food stamps, for example. Yet, as Grice notes, \u2018the top 1% of income earners are taking a larger share of total income than since the peak of the 1920s credit inflation\u2019.<\/p>\n

This is a recipe for social turmoil. And central banks are aiding and abetting it by actively trying to encourage more inflation. They seem to believe that inflation<\/a> can be controlled before it gets \u201cout of hand\u201d.<\/p>\n

The hope is that the likes of Mervyn King and Ben Bernanke, and whoever takes over from them, can conjure up \u201cjust enough\u201d inflation to make our debts go away painlessly, without ruining everyone in the process.<\/p>\n

But central banks and mainstream economists<\/a> don\u2019t have a great track record on these things. They didn\u2019t see the credit crunch coming. That suggests that they have no real idea of why it happened in the first place.<\/p>\n

\u00a0Don\u2019t Trust Central Banks With Inflation<\/h2>\n

So why should we imagine that their solutions will work any better? Why believe that they can somehow work out how to unleash inflation<\/a>, then put it back in its box at exactly the right moment? That\u2019s not a leap of faith I\u2019m prepared to take.<\/p>\n

As Grice points out, inflation is very socially corrosive. At heart, \u2018economic activity is no more than an exchange between strangers. It depends, therefore, on a degree of trust between strangers.\u2019 So if people can no longer trust the value of money \u2013 the medium of exchange \u2013 how can they trust one another?<\/p>\n

As a result, he fears that we could see \u2018a Great Disorder\u2019 as inflation takes hold and people once again start to worry.<\/p>\n

That\u2019s why he\u2019s still very bullish on what he describes as \u2018safe havens\u2019. We\u2019re not talking about government bonds<\/a> here \u2013 they\u2019d be hammered by inflation. Grice likes gold, which should do well if inflation runs out of control.<\/p>\n

But he\u2019d also stick with \u2018high quality\u2019 stocks. These are the defensive blue chips. Although their popularity now makes us slightly wary.<\/p>\n

Why would these stocks do well if inflation picks up? Grice\u2019s point is that inflation would be bad news for government bonds. If they are no longer seen as \u2018safe\u2019, then money will flood out of them into other \u2018safe\u2019 havens.<\/p>\n

And realistically, in such an environment, gold<\/a> and resilient companies would be among the few things worth holding.<\/p>\n

So when might we start to see the impact of all this currency debasement finally feed through to the price of everyday goods? It could be sooner than you might think.<\/p>\n

John Stepek<\/strong><\/p>\n

Contributing Editor, Money Morning<\/em><\/strong><\/p>\n

\u00a0<\/em><\/strong>Publisher\u2019s Note: <\/em>This article originally appeared in MoneyWeek<\/em><\/a>
\nFrom the Archives…<\/strong><\/em><\/p>\n

Does Excessive Government Spending Make You the World’s Best Treasurer?<\/a>
\n26-10-2012 – Kris Sayce <\/p>\n

Why a Return to the Gold Standard Could Actually Be Bad<\/a>
\n25-10-2012 – Kris Sayce <\/p>\n

A Safer Than Super Investment?<\/a>
\n24-10-2012 – Nick Hubble <\/p>\n

Agricultural Commodities – The Best Way to Play Rising Food Prices<\/a>
\n23-10-2012 – Merryn Somerset Webb <\/p>\n

Stock Market ‘Barometer’ Speaks: The Bulls Won’t Like it…<\/a>
\n22-10-2012 – Kris Sayce <\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nInflation is the Reason You Should Bet Against Central Banks <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au Central bank money-printing \u2018will destroy the world\u2019. Contrarian investment expert Dr Marc Faber, who writes the Gloom, Boom and Doom Report newsletter, came out with that one in a recent interview with Bloomberg. It sounds extreme. But he might just be right. Here\u2019s why \u2013 and what you should hold onto to protect … <\/p>\n

Continue reading “Inflation is the Reason You Should Bet Against Central Banks”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-33219","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/33219","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=33219"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/33219\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=33219"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=33219"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=33219"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}