2 types of inflation: supply/demand and monetary inflation

There are two types of inflation. One type is caused by supply and demand, where labour demand is high and capacity is low, forcing prices up. But there is also monetary inflation due to a devaluation of the currency.

As money gets pumped into the economy like never seen before, there will be a lot of demand because people put all that money all over the place. But the monetary inflation will have the bigger impact. When those prices rise their future expected returns go down and once returns come closer to the interest rate, there’s no longer the incentive to buy such investments. This could mean real trouble. It becomes very difficult to tighten monetary policy, because it would just add to the trouble and all could fall apart. This leads to more money printing and could lead to assets like cash and bonds having negative real returns despite the increases.

But holding cash is not the answer. Instead of having your cash devalued, owning hard assets like crypto, gold, or real estate could be your safest bet right now.

Sven Franssen