Anybody who wants to read up on the ‘paradox of inflation’ should turn to Dr Marc Faber’s classic Tomorrow’s Gold for guidance. Even six years after publication this remains the best investment book currently on sale.
His foresight is amazing and the most part of a chapter is devoted to explaining how high levels of inflation impact on asset prices. That investors will switch from fiat currencies to precious metals is obvious enough.
However, Dr Faber also highlights what he calls the ‘paradox of inflation’, namely that with general price levels surging asset classes like equities actually become very cheap. He cites numerous historical examples, such as Weimar Germany.
Coming inflation
Now in November 2002 when Tomorrow’s Gold was published talk of hyper inflation looked pretty ridiculous. Yet in the Bild newspaper the German Finance Minister Peer Steinbrueck warns that the world could face an inflation crisis in the medium term, after the immediate economic crisis ends, due to the huge amounts of liquidity being pumped into financial markets.
April 13, 2009
