by John Tamny of Forbes
In 2001 the late Jude Wanniski observed in the American Spectator that “Only when we fully grasp the importance of this definition of inflation or deflation will we be able to understand how to rid the world of these twin evils.” Wanniski knew well that it is the instability in the value of the money that drives major economic error.
When money is fluctuating in value, the money prices of all investments become distorted and mistakes are made. During periods of inflation, capital moves into the assets of the earth such as housing and gold that are least vulnerable to currency debasement, and questionable concepts such as Countrywide and Golden West Financial attract investor attention in ways that would never occur in normal times. Conversely when money increases in value, earth assets are ignored to the near-term benefit of intellectual producers, plus laughable concepts such as theGlobe.com and Webvan are able to find capital in ways they never could in a stable-dollar environment.
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