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First, a definition of inflation. I'll use the definition from the Austrian School as the definition from other schools of economic thought are misleading : Inflation is the growth/ increase in the money supply.
However when we are presented economic 'data' (mostly voodoo numbers -- be careful) inflation is defined as the increase in the price level as illustrated by a basket of goods in the CPI (Consumer Price Index).
i.e. people don't 'experience' inflation (the increase in the money supply) directly, experience the effects of inflation.
But it is not just rising prices. Inflation, as redbean's pointed out, has a positive psychological effect as well: asset prices (values?) rise, companies cash flows increase, companies profits inflate, PE ratios rise, stocks and/ or commodities have crazy rallies, interest rates are low and people (at least in the beginning and mid-term parts of the inflation) feel rich and secure. They don't mind putting up with rising prices if they feel 'wealthy'.
Inflation only starts to bite when prices are so high, they cause stress in people -- who at one time felt 'wealthy' are now begining to feel insecure as they realise their increasing 'wealth' cannot keep up with the rapidly increasing cost of living. To make matters worse, people have taken advantage of the low interest rates and borrowed themselves silly. Because of the low interest rates, the propensity to save is non existent -- who wants to save when interests rates are 1% or less?
Inflation is what we -- as a species -- are going to have to learn to live with. It can be de-stabilising, and the more the governments interfere, the worse it is likely to become.
Yesterday I blogged about the 14+% 'growth' Singapore experienced and included SingStat data. I suspect a significant component of that 'growth'was inflationary.
As for the future, I prefer to look on the bright side, whilst not ignoring the 'threats'. Let's face it, we lived through 40+ years of a Cold War where the threat of nuclear annihilation was constant -- 24 hours a day, every day.
If you want to look at disaster on a cosmic scale -- statistically we are 'ripe' for a collision from an asteroid or some other large near earth object.
A gamma ray burst from say the unstable Wolf-Rayet star (WF 104) which could go super nova anytime could fry the whole planet, Earth is DIRECTLY in the line of fire.
A lethal solar flare from our own sun could knock the whole of mankind back to the Stone Age. A large solar flare will knock out all communications, fry every satellite, destroy electric grids all over the world. In essence: no energy, no communications. I would take several decades or even centuries to recover.
Life is fragile. As is the existence of our very arrogant species. 99% of ALL the species which ever existed are now EXTINCT. That's how cold and uncompassionate nature is. And random too.
Human kind is so arrogant that there is a collective belief that somehow we are "special" and thus "invincible" that we can solve all our problems simply by using POLITICS and GOVERNMENT.I don't have a New Year's wish -- especially not for my own species. any wish is likely to conflict with someone else's. If I wish for wealth, some other person will wish for the end of capitalism. If I wish for no inflation, some banker or hedge fund manager will be wishing for more inflation. So fuck that shit.
The universe works the way it does -- it is weird, and the more we find out, the weirder it gets. It is more probabilistic and random than it is 'causal' -- although humans are more comfortable with 'causality' than they are with 'probability'.
'Wishing', 'Hoping' and 'Praying' are nothing more than putting probability into the realm of one's own subjective experience.
It sure feels good :-)
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