20-minute summary by Prof. John Hearn
Cost-push inflation is a myth. Rising prices do not cause inflation unless you have more units of money to spend.
Demand-pull — caused by an expanding supply of money and its effect on aggregate demand — is only way you get inflation.
Managers of the money stock (central banks) are the cause.
If you only have £100 to spend and the price of gas goes up, you can still only spend £100. The relative prices of the basket of goods you purchase will adjust to find a new equilibrium.
But if the government borrows an extra £10 from the central bank, increasing the stock of money, prices will adjust to include the additional £10 spent by the government. The same basket of goods will now cost £110 and you have inflation.
That is why central banks hate monetarists. They would prefer you to believe that rising prices (cost-push) causes inflation.
Their deception is aided by the time lag between <>M and <>P of up to 2 years (<> = delta/change). From Milton Friedman’s Quantity Theory of Money: M * V = P * T (where M is money stock, V is velocity of money flow, P is prices and T is transactions)
Not all government borrowing is inflationary as it does not increase M unless debt is bought by the central bank.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.