Today's blog post is a riff on Brian Wesbury’s tutorial on inflation. So all credit goes to him, and we highly value his plain English explanations of economic concepts. If you want to learn more, you should definitely follow Brian Wesbury.
So imagine the economy has 10 apples, and it also has $10. How much is an apple worth? No trick questions here, it’s $1 per apple.
But then imagine you print 3 more dollars, and now you have $13 out there in the economy. How much are apples worth? If you said $1.30, go to the head of the class.
Now let’s say you shut down your little garden economy and your apple trees only produce 5 apples. How much is each apple worth? You guessed it: $2.60.
Now, you might (eventually) solve the shutdown issues in your little garden economy. You could unravel the supply chain bottlenecks that caused the rain clouds to operate at half capacity, and the sun might get back to full employment and start shining more, and eventually, your apple trees might go back to producing 10 apples. But you’re not going to put those three dollars back in the bag, and get back to a world of $1 apples.
So the only thing “transitory” about inflation is the public’s decreasing acceptance of the Fed saying that inflation is transitory. Of course you know this, and we objected to this conventional wisdom early on in this pandemic…for these exact reasons. So what we’re looking for in the near future are ways to responsibly invest for clients who really don’t want to lose in the market, but who also don’t want too much of their cash sitting idle, dying the death of a thousand cuts through inflation.
Thanks again to Brian Wesbury for being our chief antidote to conventional wisdom, and thank you for reading.