Andrew WhiteJust to show you that my blogs are not all MDM related (so that you know I am not an automaton), I wanted to share an idea with you. I was reading today’s FT and in there was an article entitled, “State Shores Up Commerzbank”. The article was describing how the German government was pumping more money into the bank and in so doing, taking a 25% share of the bank. The comment that got me thinking was this, “At yesterday’s closing share price, Commerzbank market value was just €3.8bn – less than a quarter of the value the government’s investment.”
I had to re-read that statement. It seems that the value of the investment made by the German government had already fallen, as if deeply discounted, by the market. I thought about this for a minute and something came into my head.
Inflation is caused by excessive money chasing too few goods, this much is well known. Many economists have suggested that the recent and pending US and European efforts to shore up economic demand, by pumping billions of dollars, pounds, and Euro’s into the global economy, will create inflation sometime in the future. Ordinarily this must be true, but what happens if some of those billions “disappear”, as with the case with Commerzbank?
This is like a large black hole opening up in the ground and money being poured in. Overnight, the value of what was spent was effectively written off. However, the debt has still been created and still needs to be serviced. Government can return to the tried and test inflation driving work by printing more money to help erode the value of the debt (but of course, not the nominal cost of the debt).
So now for the new idea: what if this “black hole” got large enough that it operated like a black hole in space; what if this hole or phenomena became so massive that it operated like dark matter: an equal, or sometimes larger force, to that which we experience in this universe, that potentially balances or causes havoc by behaving as a massive weight counterbalancing behavior here?
What if inflation does not take over in the next three years as we expect due to normal market cycles and fluctuations? This “obvious” inflation might be counterbalanced by the very real global deflation that is taking place. Nominal prices might remain low for a while. But what if the huge amounts of money, really being spent, act as a kind of “dark inflation”.
Dark inflation maybe an untraceable force (like its other world cousin, dark matter) that drives inflation inexorably and inexplicably. The debt could be so great and the short term deflation so deep, and the medium term reflation so broad, that money supply growth will be near unstoppable. What then? I am sure my economic theory is wrong somewhere; and I am sure there is an answer anyway. Perhaps both will be visited here…..
Category: Economy Tags: dark inflation, deflation, Economy, inflation
2 responses so far ↓
1 Nick Jones January 15, 2009 at 10:45 am
The nice thing about money is that it’s not bound by the laws of physics. So in the worst case you can always abandon a failing universe and move to another one. This is has happened in the past with failing currencies and financial systems.
2 Andrew White January 15, 2009 at 10:49 am
If only we could, Nick. By the way, thanks for the comment. One issue with currencies is this: they are all falling in value. Its almost a race to see which one is least valuable. Even the dollar and the continuous flow of bonds (at a pittance of a return) continue to fluctuate as does most other important currencies. So in order for the currency exchange to help “consume” or mask the impact of (say) inflation for inbound materials, one currency has to appreciate against another, and over some period of time. It is not altogether clear if this will happen.