Inflation
Not too long ago I was writing about deflation hitting the UK economy.
Well, I may have been too quick. More recent reports and the markets seem to now expect inflation - and I mean serious inflation.
A businessman I was discussing with yesterday was worried. He noted that all governments had printed money too fast to get us out of the recession, and suggested this had happenned more than publicised. If all this money is around, it will surely lose its value.
This was a businessman from overseas, who was keen to buy real assets with his cash and was shopping around for land, property, gold and oil. And his only worry was that commodities and property are sold in local currency which means they are exposed as well.
The problem of course is not monetary. When you have a country that doesn't produce anything, printing money will just be translated into inflation in the long term. This is known. The challenge here is for all this trickery to create some business growth quickly before markets realise that cooking the numbers doesn't make a country stronger financially.
I wonder if Adam Smith (featuring on the £20 notes) had thought about all this government intervention in his free market theories. I somehow doubt so.
The trillion dollar question
A very interesting article in the Telegraph talks about the shift in economic muscle taking place between China and America in the current economic crisis.
To simplify the story, think of an unhappy marriage in which one partner does all the saving, while the other does all the spending. (We all know at least one couple like that.) But then the partner with the retail therapy habit maxes out on his/her credit cards. At the same time, the parsimonious partner finds her/his job under threat. What previously was a stable relationship is suddenly on the rocks.
To me, it's not a question. People who work hard and save money always do better than fly-by-nights who borrow, spend, and then borrow more. The same will apply for nations. If an American bank predicts China's GDP to overtake America's by 2027, my bet is that we won't have to wait that long.