The monetary regime in power now—the so-called 2 percent inflation standard—is promising us a “return to normal” after the great pandemic and war inflation of 2021–22. At this time of powerful propaganda—the dismal accompaniment of natural disaster and war—we should be on our guard against such messaging.

Bad money regimes base themselves on a dysfunctional social contract. You, the people, agree to put up with a “moderately good” money in return for us (the regime) providing benefits in terms of employment and economic prosperity which would be unavailable if you (the people) had insisted on a high-quality money.

There is a story of war and peace in the contemporary currency markets. It has a main plot and many subplots. As yet, the story is without end. That may come sooner than many now expect.
The narrator today has a more challenging job than the teller of the story about neutral, Entente, and Central Power currencies during World War I. (See Brown, Brendan “Monetary Chaos in Europe” chapter 2 [Routledge, 2011].)

Under any remotely sound money regime the aftermath of war and/or pandemic is highly likely to feature a sharp decline in the prices of goods and services on average. Even under unsound money regimes there are powerful forces operating towards lower prices once the war/pandemic recedes. Strong injections of monetary inflation, however, can overpower them.

Inflations have an inbuilt mechanism which works to burn them out. Government (including the central bank) can thwart the mechanism if they resort to further monetary injections of sufficient power. Hence inflations can run for a long time and in virulent form. This occurs where the money issuers see net benefit from making new monetary injections even though likely to be less than for the initial one which took so many people by surprise.

Global supply shocks are historically rare events. All the more extraordinary to have two such shocks in quick succession—the second arriving even before the first has entirely faded away. That is what the world now experiences in the form of the Great Pandemic followed by the Great West-Russia economic war. The most visible symptom of the supply disruption is the sky-high price of energy and a range of other commodities.

In the incessant media discussion about whether inflation is transitory there is a big elephant in the room about which all are silent. Perhaps strangely some do not see it. Others for whatever reason pretend it is not there. The elephant is the fantastic surge in US corporate profits that monetary inflation has fueled during the second year of the pandemic.

There has been no constant concept of asset price inflation through the modern age of fiat money even amongst those who recognize the condition. The term has become most popular in the present period of inflation targeting coupled with the use of radical monetary tools.

Many episodes of monetary inflation, some even long and virulent, do not feature a denouement in a sustained high CPI inflation over many years. Instead, these episodes have the common characteristics of asset inflation and the monetary authority levying tax in various forms – principally inflation tax or monetary repression tax.

Authored by Brendan Brown via The Mises Institute,Never mind that the US Treasury’s indictment late last year of Switzerland as a currency manipulator rested on some flawed evidence and does not identify the crime.

The 1920s featured political détente, debt liquidations by prior consumer price inflation, an introductory stalling of monetary inflation, a German economic miracle, and a broad-based technological revolution. The 2020s have none of these.

Original Article: "Why the 2020s Won’t Be like the Roaring 20s"
This Audio Mises Wire is generously sponsored by Christopher Condon. Narrated by Michael Stack.

The Fed Emperor’s New Clothes Show is a continuous comedy without laughter. The latest act, the virtual Jackson Hole conference (August 27), was dreadful. The show’s audiences are accustomed to the Fed chair and his board delivering solemn pronouncements about their aims—low inflation, high employment, and financial stability.

Abstract: Much of Shiller’s new book is about how economic narratives form, spread, and fade. Drawing on medical evidence about the spread of infectious disease, Shiller argues that “economic fluctuations are substantially driven by contagion of oversimplified and easily transmitted variants of economic narratives.” But Shiller ignores the powerful role of monetary disorder, whether in forming the narrative or determining the contagion rate, or as a competitor to the narrative.

In the last decade, the combination of virulent asset price inflation and low reported consumer price inflation crippled sound money as a political force in the US and globally. In the new decade, a different balance between monetary inflation’s “terrible twins” — asset inflation and goods inflation — will create an opportunity for that force to regain strength.