Creating an excuse to raise rates?

The Australian Reserve Bank has been keeping its rates steady while the US, Europe, Japan, etc. have been inching up. The Oz RB is often described as having an inflation target and having gotten ahead of the curve by not going so low as other CenBanks over the past several years. And all the commentary here in the Merry Old Land of Oz is that interest rate rises are simply not on the horizon, not this year at least. It's truly a Goldilocks economy - not too hot, not too cold.

Well, Captain Kirk pointed me to one commentator who sees a bit of monetary trouble on that front. Puru Saxena writes,

The absurd money-creation continues. Slowly yet surely, the "stealth" confiscation of savings is gaining momentum as money loses its value. Central banks claim that they are raising interest-rates to fight inflation. At the same time they are slipping in more rum into the punch bowl, thus creating just what they say they want to fight - inflation! Take a look at the latest year-on-year money supply growth-rates around the world:

Australia + 9.1%
Britain + 11.7%
Canada + 7.7%
Denmark + 14.7%
US + 8.1%
Euro area + 7.3%

When I glance at these mind-boggling figures, at least I don't see any monetary tightening taking place! Make no mistake, this excessive liquidity is inflation that banks are creating and this inflation is destroying the purchasing power of your hard-earned money. As asset-prices continue to benefit from this monetary insanity, the wealth inequality is getting wider resulting in social unrest in several parts of the world. The ultimate truth about inflation is that it always benefits the rich who are able to ride the inflationary wave by investing in assets, whereas the poor become even more impoverished as things continue to become more expensive.

So far, the ongoing inflation has been masked by the bogus core inflation figures released by the authorities. According to the official statistics, inflation is tame and under control. But if you take a look around, you will realise that the cost of living is rising much faster than the officials would have you believe. The cost of energy has gone up six times; the cost of housing is at a record-high in most countries; education is ridiculously expensive and insurance premiums are soaring. And we should believe that inflation is not a problem?

during the 1970's, commodities were the main beneficiaries of inflation and financial assets lost out. However, in the following two decades, it was financial assets which were the biggest beneficiaries of inflation. Since 2001, this excess liquidity has (once again) started flowing into commodities as can be seen from the recent massive gains in tangibles relative to gains made in financial assets such as stocks and bonds.

There is another crucial point I'd like to make. During highly inflationary times (such as now), the purchasing power of money declines against all asset-classes. In other words, if enough money is printed, despite a horrendous economy, stocks, bonds, property, commodities as well as collectibles may all rise at the same time. Such a rise in asset prices due to high inflation gives the ILLUSION of prosperity. Nothing can be further from the truth however. Hyperinflation almost always leads to a collapse in the inflating country's currency relative to other major world currencies. Now, if all the countries decide to print money (inflate) at the same time, which seems to be happening now, instead of declining against each other, the various currencies may decline against assets. So as investors, we need to try and figure out which assets are likely to appreciate the most due to inflation.

I note that the most common explanation you see over and over again as the S&PASX 200 just keeps skipping from record new high to record new high is simply "weight of money".

Kirk also points us to another American, Daniel Gross, who is amazed at the success of the oft-mentioned Macquarie model.

Kirk's blog rightfully deserves the praise recently given to it by Barron's. Before I spun out of control with my moving back to Guam, I was a regular reader of his blog, and even had an occasion or two to communicate with him. It's definitely good value and a source of all kinds of interesting knick-knacks.