Inflation, Deflation, or something else?

What comes next?

Coronavirus = economic carnage. The pandemic isn’t the cause. Instead, it’s just the pin that pricked the decades long credit bubble.

The carnage is already quite clear to the 22Million newly unemployed and eventually the economic consequences are surely to arrive at your door too.

And, while nobody knows for sure how the next months and years will unfold, it is important to form a working hypothesis so that we can position ourselves to survive and, hopefully, thrive.

The two biggest competing paradigms of our economic and monetary future are Inflation and Deflation.

When people think of inflation they think of the hyperinflation of Zimbabwe, or Germany’s Weimar Republic. Or they imagine the Stagflation of America in the 1970’s.

When people think of Deflation, they typically think of the Great Depression in the US.

As you can see in the chart below, up until about 1950 it was pretty common for the US to experience alternating periods of inflation and deflation. Since then, it’s been nothing but inflation, however modest.

Inflation was the most popular response in my twitter poll.

Moderate inflation has been a constant companion in my life and yours too according to the chart above. How much of our inflation expectations come from simple normalcy bias?