We heard it a million times following the start of QE and the government’s stimulus package – high inflation was coming. It was inevitable given all the “money printing” that was going on, right? And when it didn’t come the narrative changed from “it’s coming” to “just you wait”.
Well, we’re now 5 years removed from the depths of the crisis and the Fed and the government’s extraordinary measures and the high inflation never came. The bond vigilantes never came. The dollar never crashed. US Dollar denominated financial assets have beat the pants off of just about everything. Interest rates never spiked. The US government never turned into Greece or Zimbabwe.
5 years is a long enough time period to judge the predictions of those who called for a disastrous inflation. And the predictions have been so far from right that you have to seriously wonder if many of these people are working from a proper operational understanding of the monetary system. Of course, I would argue they haven’t been working with a full deck of cards.
I got to thinking about all of this as I read these two pieces in recent weeks about how bad these predictions have turned out. It wasn’t me repeating myself again. It was from Bloomberg and the Wall Street Journal. They not only cite how much money was lost by traders who utilized this deficient framework, but they also cite how public policy has been directly hurt by these persistent calls for inflation.
This is huge stuff. I think it calls entire forms of thought into question. And it validates others. Being right matters. Unfortunately, in the world of economics and finance politics often trumps pragmatism.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.