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.
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.
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.
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.