Tsunami of inflation

Today marks the 4 year anniversary of one of the wost natural disasters in human history. On December 26th 2004 a Tsunami, caused by an earthquake in the Indian Ocean, devastated heavily populated coastal areas of Asia and Africa. According to the United Nations 229,866 people are lost, dead or missing as a direct result of the Tsunami. Including delayed impacts, such as disease and fatal injury, the death toll is estimated to be greater than 350,000.

Our thoughts and prayers go out to the individuals, families, communities and nations impacted by this horrific event.

At the time no warning systems existed in the Indian Ocean. If initial seismology readings were connected to a warning system most people would have had 30 minutes to several hours to evacuate to higher ground. The death toll could have been dramatically lower. Today Tsunami warning systems have been established across the Indian Ocean and connected regions.

Even without this early warning system the death toll could have been dramatically reduced. Tsunamis have a very distinct behavioural pattern. The first part of a tsunami to reach land is a trough (draw back) rather than a crest of the wave, the water along the shoreline may recede dramatically, exposing areas that are normally always submerged. This can serve as an advance warning of the approaching tsunami.

As I reflect on the warnings and terrible consequences of the Asian disaster, I can’t help draw parallels to an inflation tsunami headed our way. The warning signs have been there all along: loose monetary policy, asset bubbles, competitive currency devaluations, bail outs, excessive debt and leverage, lax or even corrupt regulatory oversight, excessive government and manipulated asset markets.

Jens O Parssons in the Dying of Money: Lessons of the Great German & American Inflations (Wellspring Press, 1974, p.71) best describes the initial ignorance, early warning signs and final consequences of inflation.
"Everyone loves an early inflation. The effects at the beginning of inflation are all good. There is steepened money expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular general prosperity, all in the midst of temporarily stable prices. Everyone benefits, and no one pays. That is the early part of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the money inflation in order to stave off the latter effects, but the latter effects patiently wait. In the terminal inflation, there is faltering prosperity, tightness of money, falling stock markets, rising taxes, still larger government deficits, and still roaring money expansion, now accompanied by soaring prices and ineffectiveness of all traditional remedies. Everyone pays and no one benefits. That is the full cycle of every inflation"

For the many deflationists out there take particular note of the Parssons comments re faltering prosperity and tightness of money. This is a normal phase of inflation. Using the tsunami parallel first the ocean disappears (draw back) and its all sand for miles in front of you then out of nowhere appears a giant wall of water 10 stories high.

Right now most people are standing on the beach saying “where has all the water (cash) gone?” Those well studied on the patterns of tsunamis understand what this signals and have moved their families to higher ground by protecting themselves with physical gold and silver.