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InflationsNo, we have not been influenced by real estate brokers. We have been influenced by Monetarist economists and their twisted (or quirky) way of looking at things.

We have often spoken about the evils of inflation and how it is manufactured by Central Bankers on demand from politicians (see for example Fake Money For A Fake Economy, Senseless Inflation And Interest Rates, Central Banks Must Go).

However, we have never fully explained why inflation is so difficult to see and so easy to mask or, more precisely, pseudo–explain away by politicians and their drone economists.

It so happens that inflation comes in three flavors, which are actually the same thing viewed from a different angle. They are:

  • Price Inflation
  • Asset Inflation
  • Purchase Power Loss

Let's take a look at each one of them.


This is the most obvious inflation that everybody sees; prices go up. This is clearly reflected in the CPI (Consumer Price Index), however "massaged" this number may be.

Price increases are typically more notorious as you go down in social classes. Rich people usually don't bother worrying about this, because they are… well… rich.

Middle classes are usually the first ones to notice, since they are already struggling with their weekly or monthly budgets. Food prices go up. Clothing goes up. Gasoline goes up. Phone services go up… and so forth.

Poor people are the desperate one, because their budgets are already negative to begin with and are literally struggling for their lives.

For this type of rise in prices, Monetarist economists apply the "we are on the same boat" Public Relations strategy. They are there "fighting" inflation which is getting out of hand because of (insert favorite meaningless economic pseudo-explanation here) and making our lives miserable. If only they could bring inflation down to their "target" rates, everything would be OK.

And guess what? It works every time! Why is so? Because people are sick and tired of governments doing nothing. In a very perverse manner, Central Bankers stating that they are against inflation and doing something about it brings psychological comfort to the people. Never mind that they are the ones creating inflation in the first place!

Economic and political PR machines are well tuned and oiled to deal with this. The mantra is always the same: Sympathy and Bull-Shit.


This kind of inflation is hidden inflation. Only certain things seem to go up for no reason. Houses rise in price. Commodities rise in price. Stocks rise in price, and so on, but seldom at the same time. Furthermore, asset inflation is usually not correlated (i.e. not in synchronism) with price inflation.

People see selected things going up in price but they don't connect the dots. This is so because there is always a handy economist or commentarist or subject–matter expert du jour ready for a unique explanation. You see dear reader, "The economy is firing on 5 cylinders and hence…", "There is a global acceleration in the consumption of…", "The commodities are in a cycle of…", "This asset was overvalued for the longest time and now…"; blah, blah, blah, blah and them some more blah.

Politicians and economists use the "B" tactic when it comes to asset inflation: go with the flow. It is actually quite clever. Why bother with an explanation if all those experts are explaining it away for them. The law of minimum effort at work. And then again, as people are bombarded with so many possible explanations and since asset inflation is usually uncorrelated to price inflation, they don't make the connection. They cannot understand that Central Bank printing is causing it.

Eventually, of course, comes the crash. Now Central Bankers switch to PR plan "C".

What in the past was labeled a "goldilocks economy" it is now a "popping bubble". Again, this is a clever tactic. Acknowledgement and misdirection. The now–called bubble was in effect a matter of "irrational exuberance" (where have we heard this one?); it was created by an "overheated market", "speculators are clearly to blame" and so forth. If only Central Bankers would know that a bubble was forming, they would have been able to do something about it. But not to worry, dear reader, Central Bankers are here to "manage" the crisis.

And again.

And again.

As they have been doing unsuccessfully for at least 200 years… oh well. Eventually they will get it… right?… right?


This sounds like something extracted from the depths of a space program, alas it is not. It is actually something quite trivial but deadly. It is so because it is stealthy and ignored by everyone, yet it is very, very real.

When inflation begins most company have their profits reduced because the price of raw materials are also rising. However, these companies understand that if they pass the increments to their customers, their sales will drop. Hence, they do the only thing they can, accept lower profits.

The problem is that this can go on only up to a certain point. Past this point, companies are threatened with non–profitability, meaning going out of business altogether. However, they still can't raise prices because they need the sales. So, what do they do?

They shrink the product. Sure, the box still looks the same, the proportions are the same, the colors are the same, the packaging is the same and, of course, the price is the same. The only thing that changed is inside: the product.

This type of inflation can typically be seen in countries where inflation does not routinely reach double digits. In these countries, consumers do indeed stop buying if the price goes up because they are psychologically conditioned to think of prices in terms of generic versus brand name. The public does not understand that this is no longer the case and that the underlying inflation is distorting the whole picture. Hence, they stop buying. Hence, they force manufacturers to reduce the quantities of profit.

If you happen to live in such countries, next time you go to a supermarket take a very close look at certain products that are very prone to this kind of manipulation, for example cookies or beverages or jams or nuts. Or thing that come in tubes, such as tooth paste where mysteriously manufacturers have switched from weight to volume. Why? Because the density of the material is greater than one. This means, for example, that 1 gram of product may be contained in 2 milliliters. When the manufacturer switches from weigh to volume, the box still displays a prominent number one, but this time followed by a small "ml" sign instead of a "gr" one. The box and the price are the same but the amount of content was cut in half.

You will notice that although the price has not changed, the quantities are now smaller. Yet, this is done in such a manner to maintain all appearances.

Because you are still paying the same price but you are receiving less product, this means that your capacity or power to purchase has decreased. You have lost part of your ability to buy a product. This type of inflation is the worst, because it is not even commented or advertised. The previous two types are very much under public scrutiny, but this type is not.

In rare occasions where Central Bankers are actually asked about this phenomenon, they invariably switch to PR plan "D": ignore the question or pass it on to the manufacturer. According to them, it is a "market" decision. The fact that through inflation they are squeezing all manufacturing profits into oblivion has absolutely nothing whatsoever to do with the issue. Right!

And if you believe this one, we have a special one sale for you this week: wonderful pasture lands in Antarctica. True, they are a little bit white, granted, but don't you worry; this is nothing that a little bit of global warming can't cure. Going fast!


Inflation is such a terrible process precisely because a great deal of it is either invisible or explained away on purpose with nonsense. It is hard (if not impossible) to dismiss two or three generations of brainwashed people. As in the movie The Matrix, most people are not ready to be unplugged; they are too dependent on the system. Except, this time, the Matrix is real. You can continue believing in economic science fiction or accept the hard reality. It's not easy but we do guarantee that you will sleep better. And so, accept reality or not. It is entirely up to you.

Note: please see the Glossary if you are unfamiliar with certain words.

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