Inflation: Keynes, the Gold Watch, and Everything

The comments below are an edited and abridged synopsis of an article by Charles Hugh Smith

Demand isn’t the problem; supply is, and that can’t be resolved by printing more currency, lowering interest rates or cranking up inflation.

Inflation: Keynes, the Gold Watch, and Everything | BullionBuzz | Nick's Top Six
Mechanism of an old gold pocket watch.

To the degree that we have an economic order dominated by Keynes and demand, then a discussion of inflation has to come around to Keynes and his solution to all economic ills: Demand, or money burning a hole in your pocket.

Keynes’s solution to economic ills was to stimulate demand for goods and services by giving people more money and making it easier for them to borrow more money, in order to promote spending, not savings and investment. The more people were encouraged to borrow and spend, the more demand for goods and services would increase and this growth would solve all economic troubles.

But inflation isn’t just a mechanism to incentivize borrowing and spending now rather than later, it’s a policy of impoverishing the bottom 90%. The wealthy have income and capital gains from assets which bubble higher in the magical kingdom of Keynes, while those who depend on wages for their living lose ground every second the watch ticks forward in time.

Keynesian magic can’t conjure substitutes for fresh water, wild fisheries, or cobalt. Today, demand is not the issue; supply is the issue, and the Keynesian magicians are blind to the consequences of this change.

The problem isn’t that there’s not enough money in consumers’ pockets; the problem is that the price of goods is rising faster than the Keynesians can stuff money into pockets. There are no substitutes for what is scarce, and unless the Keynesians can turn dirt into cobalt, make pollution vanish and provide magic carpets for moving stuff around, then the economy will be dominated by shortages of resources and other inputs for which there are no substitutes.

It’s a different world, so move your gold watches from 1932 to 2021 or suffer the consequences of faith in fake magic. Demand isn’t the problem; supply is, and it can’t be resolved by printing more currency, or lowering interest rates, or cranking up inflation.

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