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Mark Mobius. The Inflation Myth and the Wonderful World of Deflation
Table of Contents
List of Tables
List of Illustrations
Guide
Pages
The Inflation Myth. AND THE WONDERFUL WORLD OF DEFLATION
PREFACE
INTRODUCTION
Note
ACKNOWLEDGMENTS
ABOUT THE AUTHOR
1 History and Inflation
History as Inflation
Importance of Inflation Numbers
The Long Coffin
Marco Polo and Money
Gold and Silver Coins
Money and Trust
The Urge to Debase
Rome's Debasement
England's Debasement
Shells and Money
Summary
2 The Critical Importance of Inflation Numbers
Making Important Policy Decisions on Inflation Data
International Interest in Inflation
Countries With Inflation Statistics
The Influential Measure
Impact on Individual Lives
The Popularity of Inflation Numbers
India Stops Futures Trading To Influence Inflation
China’s Efforts To Influence The CPI Numbers
The Effect of Mexican Tomatoes On Inflation
Venezuela Attempts To Rein In Inflation Through A Cryptocurrency
Fed Up
Inflation Numbers Knock‐on Effect
Wage indexing
When Central Bank Actions Fail To Influence Inflation
Investment Decisions and Inflation Numbers
Bank Decisions
Summary
3 What is Inflation?
What the Experts Say
Inflation is Used by Government to Tax the People
Inflation is Used by Governments to Solve Budget Deficits and Pay Their Debts
Companies Maintain Profits By Increasing Prices
Governments Can Control Inflation
Increased Production Can Solve Inflation
Growth Can Be Achieved by Lower Inflation
Inflation is Bad
Inflation Must Be Defeated
People Spend in Order to Defeat Inflation
Inflation Destroys Your Savings
Inflation is Good
Inflation is Caused by Too Much Money
Central Bankers Must Control Inflation
Central Banks Cause Inflation
Businesses Raise Prices in Anticipation of Inflation
Higher Inflation and Higher Interest Rates are a Vicious Cycle
Inflation is Related to a High Government Debt and Low Growth
Budget Deficits Do Not Cause Inflation
Inflation is Caused by Higher Labor Costs
Rising Prices Do Not Cause Inflation but Only Report It
Inflation is Not the Increase in the Quantity of Money
Defining Inflation
Inflation as a Worldwide Disaster
Summary
4 What is Hyperinflation?
What the Experts Say
Hyperinflations around the World
The German Hyperinflation Experience
Yugoslavia: Printing Money To Pay Government Debt
Legalized Looting In Zimbabwe
Printing 30 Tons of Zairean Banknotes
Summary
5 Money Supply and Inflation. Inflation as a Monetary Phenomenon
What Is The Money Supply?
Measuring Money Supply
Money Creation through Fractional‐Reserve Banking
The Money Illusion
Credit Is Money
The Collapse of Paper Money
Demise of the Dollar
The Gold Standard
The Universe of Cryptocurrencies
Summary
6 Measuring Inflation
Why You Can't Trust the Inflation Numbers
The History of Measuring Inflation
Building the Index
Gin and Inflation Measurement
The Boskin Commission
US GDP Numbers Questioned
What Are People REALLY Buying?
The Changing Time and Place Bias
Market‐Basket Bias
Data Gathering Difficulties
Complexity
Data Gathering
Urban–Rural Inflation Differences In China
Currency Confusion – The Tenge
Pakistan Statistics Concerns
China’s Suspect Statistics
UK Inflation Index Credibility
India – Data Gathering Difficulties
The Brazil Experience
Urban–Rural Inflation Differences In China
Inflation Differences Within Turkey
Malaysia Concerns
South Africans Skeptical Too
Income Differences
What Statistics Fail to Measure
Summary
7 Controlling and Manipulating Inflation. Governments’ Vested Interest
Central Banks Control Attempts
The Phillips Curve
The Taylor Rule
The Fisher Effect
Inflation Targeting
The Magic 2%
The Low Inflation Trap
Argentina: Lies, Damned Lies
Brazil Anti‐Inflation Efforts
Chinese Government Efforts to Control Inflation
Philippines Data Control
Venezuela – Eliminating a Bill
India Control Efforts
Korea: Consumer Pressure
Bottom Line
8 The Wonderful World of Deflation
What the Experts Say:
Monetary Policy Can't Control Inflation
Deflation Should Be Prevented
Deflation Benefits Debtholders and Property Owners
Technology Is Causing Deflation
Deflation Is Bad for People in Debt
Deflation is a Decrease in Money Supply and Credit
Central Banks Cause Deflation
Deflation Is Caused by an Increased Production of Goods and Services
People Should Accept Deflation
Deflation Is Bad
Deflation is Good
The Trend towards Lower Prices and Rising Incomes
Food and Gold
Productivity and Deflation
Technology and Deflation
Deflation is Next Door – Singapore and Malaysia Prices
Deflating the World's Fair
Linking Income and Costs
Deflation Statistics
US Deflation
Singapore Deflation
Japan Deflation
India Deflation
China Deflation
Bottom Line
9 Conclusions
REFERENCES
INDEX
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By Mark Mobius
In the wake of the COVID‐19 crisis, we witnessed a lot of speculation about global economies slipping into recession. This, in turn, was expected to lead to a deflationary environment driven by weakening growth and demand. As a result of the crisis, we witnessed short‐term price fluctuations in stock and bond markets all over the world.
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Not only did the Ming Dynasty not return to paper currency, its successor – the Qing Dynasty – also eschewed the paper system for almost all of its 200‐plus years rule. The two exceptions to this were between 1651 and 1661, and between 1853 and 1861, both to fund military activity. In the latter case, Emperor Hsien‐Feng attempted to overcome previous problems by setting up a system of Coin Houses. The idea was that people with paper currency could exchange them for silver notes, which in turn could be exchanged for silver or copper coins. This convertibility, in theory, should have set the value of the notes and enforced people's faith in them. In practice, the Coin Houses didn't offer the full value of coins or silver notes but demanded substantial discounts in order to exchange them.
Today, the Ming banknote is a historical artifact, with an example on display at the British Museum, which was featured in the BBC series A History of the World in 100 Objects. The British Museum note is worth 1,000 coins, with the design showing a drawing of the number of coins it represents. In practical terms, it was clearly a great step forward: this one note was the equivalent of 3 kilograms or 1.5 meters of copper coins (Chinese coins at the time had a hole in the center so they could be collected onto a piece of string – a long piece of string in this case!). That was the theory, anyway. Fifteen years after the launch of the paper currency, this 1,000‐cash note was worth just 250 coins. And while a note from the time of the currency claimed, “Whenever paper money is presented, copper coins will be paid out, and whenever paper money is issued, copper coins will be paid in,” the governmental urge to print more money rendered it unworkable. While the note bears the legend “to circulate forever” it is today instead a historic reminder of another system that went wrong.
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