This just in: Traditionally, we blame inflation on the availability of money in the economy. The more dollar bills that are floating around, the less value each one has. This thought rightfully treats money as a commodity. Think about diamonds, they are valuable because they are scarce. Grains of sand have little value because they are plentiful.

Traditionally, the Federal Reserve has been in charge of controlling inflation. They do this by raising the interest rate for borrowing money. If borrowing money becomes more expensive, people and companies will borrow less which means there is less money in the economy which means the value of money goes up which means a dollar can now buy more. Inflation solved.

The problem is that Traditional Thinking is like being stuck in a wagon wheel rut on a dirt road. It can be tough to get out of the rut. Thus, it is difficult to look at inflation differently.

However, “When we change the way we look at things, the things we look at change.” – Wayne Dyer.

I’m going to do that – change the way I look at inflation.

Instead of saying, “There is too much money in the system and thus, the money has less value.”….instead…I say, “There are not enough goods in the system and thus, the goods cost more.

This is a Supply/Demand issue with regards to goods. When demand is greater than supply, the price will rise until equilibrium is achieved.

Look at used cars. People are keeping their cars longer, which lowers the supply of used cars. The pandemic lowered incomes so people were looking for cheaper, used cars instead of new one. Supply of used cars dropped while demand went up. The result is higher prices for used cars.

Now comes the important point…

The pandemic has significantly disrupted global supply chains. This spans a broad swath of products from cars to durable goods to food. The result is that we have fewer products on the shelves. Supply drops while demand does not. The result is higher prices for those products that do make it to the shelves.

What else can be contributing to inflation?

Gas prices are skyrocketing. This is a product with a very low price elasticity. This means that when the price goes up, demand is unaffected. Why? Because we need to get to work.

Wages are going up. This is a minor issue. Higher wages mean, at least in the short run, lower profits and thus, less money for shareholders. In other words, this is close to being a zero-sum issue. More cash in the hands of wage workers and less in the hands of the wealthy. This can cause inflation, not because of more money in the economy (zero sum) but because demand for goods will go up. Wage workers spend extra income where the wealthy save it. Spending it puts the cash into the economy. More cash and higher product demand…this can cause inflation.

Biden’s Build Back Better is a false flag. We are talking about $2 trillion over 10 years or $200 billion a year. This is a relatively small amount. More importantly, we have inflation now and the money from this bill won’t even start to enter the economy for months.

Interest rates are at record lows. Raising the cost of interest will reduce borrowing. People will buy fewer homes and home furnishings etc. Raising the rate will take cash out of the economy and lower consumer demand. As I said earlier, this is Traditional thinking. That doesn’t mean its wrong. I just think its not the correct Big Solution right now.

If I could choose one thing on the table to move in order to stop inflation, it would be the elephant in the room – The global supply chain.

Time to save the world.

Up, up and away…

Ji