Asset Inflation

Principles of Economy

by Martin A. Armstrong


Asset Inflation

Asset Inflation is quite different from cost-push or demand-lead inflation. Unlike these other forms of inflation, Asset Inflation is created soley by the actions of government through the means of its too often unrestrained fiscal policies. Hence, Asset Inflation is the direct result of a depreciation in the purchasing power of a currency felt broadly across every sector of an economy simultaneously. There is no link that can be found to either cost-push or demand-lead inflation. However, in most cases, Asset Inflation is often characterized by a great boom in the economy, which can often be misunderstood to be demand-inflation. The majority may believe that they are indeed merely profiting from great investment decisions. In fact, when ALL forms of investment usually respond to Asset Inflation with one particular sector being favored.

True demand-lead inflation is hallmarked by the fact that it is typically restricted to one particular sector. A shortage in cruel oil may lead to a doubling in its price, but this does not necessitate a doubling in real estate, stocks or other sectors. Asset Inflation is broadly felt much more evenly over most sectors. During the late 1970s, everything moved higher with a particular focus in commodities. During the mid-1990s, the Dow Jones Industrials rose sharply ahead of real estate, art and collectibles. Nonetheless, Asset Inflation was evident in every sector.

CONCLUSION

True investment gains are restricted to isolated situations. Asset Inflation is distinguished by a broad boom in value of most asets relative to the purchasing power of the currency. When most assets are rising togther, the source of the problem lies with government. When one particular share rises sharply, apart from the broader market as a whole, then you have make the correct investment decision and profit will then be “real” rather than merely keeping pace with the depreciating currency value of a nation.


Principles of Economy

©Martin A. Armstrong