The Great Reflation: How Investors Can Profit from the New World of Money

Chapter 1. The Age of Inflation

The inescapable conclusion of any factual study of the major kinds of inflation is that debt, in its many forms, moves restlessly and relentlessly beneath all of them.

—Richard Dana Skinner^[3]

The Great Reflation is the term we use to describe the government's massive monetary and fiscal stimulus program. Initially, its purpose was to stop the possible death spiral of the economy in 2008 and early 2009. Now its purpose is to prevent a relapse. The program has triggered an avalanche of new money. It will create a world that will be nothing like anything any of us have seen before. It represents a new and different chapter in inflation, a phenomenon that has prevailed off and on, but mostly on, since the outbreak of war in 1914. Then, almost every important country detached its currency from gold in order to finance the war with a free hand. That was the start of the Age of Inflation. Investors need to understand the historical context; it is important because the roots of inflation are long and deep, and it will not be easily ended.

The Age of Inflation has had a colorful history and consistently demonstrates the notion that money, not backed by something of value, does not look after itself. The discipline that comes with solid backing, traditionally gold or silver, makes it difficult to create too much money and prevents countries from running chronic deficits and surpluses vis-à-vis other countries. It also constrains banking systems from creating ...