Inflation is Always and Everywhere a Monetary Phenomenon
by JDH on August 31, 2024
To paraphrase Milton Friedman, if you print a lot of money, inflation goes up.
The money supply (M2) growth in Canada peaked at 14.3% in February 2021 and steadily dropped until it hit a growth rate of “only” 1.6% in June 2023. Since then, M2 has increased, and in June 2024, the annual growth rate hit 4.2%, the highest growth rate in 21 months.
But here’s the thing: money printing does not immediately lead to inflation.
There’s a time lag of around 16 months, give or take.
If these trends continue, CPI will continue to fall, and could hit zero by early 2025. However, as you can see from the blue line, M2 has already started to increase.
The brakes were on, but now they are pushing the gas pedal, so higher inflation will return in late 2025 and beyond.
The play, then, is to buy bonds now to take advantage of lower interest (to “quell” inflation) but those bonds are not a long term hold. You hold for six months, perhaps a year, pocket the interest, and then make a capital gain when you sell.
And as the increase in the money supply kicks in, liquidity rises, and assets (like gold and Bitcoin) will be good investments.
Or not.
We shall see.
Enjoy the long holiday weekend, the fall will be interesting.
Inflation is Always and Everywhere a Monetary Phenomenon
by JDH on August 31, 2024
To paraphrase Milton Friedman, if you print a lot of money, inflation goes up.
The money supply (M2) growth in Canada peaked at 14.3% in February 2021 and steadily dropped until it hit a growth rate of “only” 1.6% in June 2023. Since then, M2 has increased, and in June 2024, the annual growth rate hit 4.2%, the highest growth rate in 21 months.
But here’s the thing: money printing does not immediately lead to inflation.
There’s a time lag of around 16 months, give or take.
If these trends continue, CPI will continue to fall, and could hit zero by early 2025. However, as you can see from the blue line, M2 has already started to increase.
The brakes were on, but now they are pushing the gas pedal, so higher inflation will return in late 2025 and beyond.
The play, then, is to buy bonds now to take advantage of lower interest (to “quell” inflation) but those bonds are not a long term hold. You hold for six months, perhaps a year, pocket the interest, and then make a capital gain when you sell.
And as the increase in the money supply kicks in, liquidity rises, and assets (like gold and Bitcoin) will be good investments.
Or not.
We shall see.
Enjoy the long holiday weekend, the fall will be interesting.