I’m Favouring Equities And Gold Over Bonds

The comments below are an edited and abridged synopsis of an article by John Stepeck

Inflation has exploded during our lifetimes, and not just general price inflation; asset prices have surged too, and it’s all down to rampant population growth.

A booming population led to rocketing demand, which knocked out the gold standard and ushered in the fiat currency system.

I'm Favouring Equities And Gold Over Bonds | BullionBuzz

Many think that population growth will keep multiplying, but they are mistaken. The rate of global population growth peaked at 2.09% in 1968. This year, it is set to fall below 1.1%, the first time that’s happened since annual estimates began in 1950.

Meanwhile, we’ve unleashed the fiat currency genie. And inflation in a fiat currency world is a political choice and easy to create if there is the appetite.

Given current debt levels, many governments will be tempted to continue to run deficits for a long time, and to ensure that central banks monetize this debt.

Meanwhile, population growth is slowing, and demographics don’t point to a more deflationary world. Inflation has slowed since the 1980s.

At that time, China rejoined the global economy and added masses of people to the working-age population. A bigger labour supply means cheaper workers, but this is reversing.

There are debates over whether an aging population is inflationary or deflationary. But anger about the lack of real wage growth has given rise to a group of politicians who want to shift rewards from capital to labour. That means higher wages, and that means inflation.

While we may revert to the long-term mean of slow population growth plus a harder monetary regime that keeps inflation in check, it will only come about as a result of a political backlash to a great inflationary reset.

Stepeck sees an inflationary crisis next, and he favours equities and gold over bonds.

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