What inflation numbers indicate?

by Chandrakant Sampat

I believe that money has now shifted from low velocity to high velocity; velocity is going to decide what inflation will be. Inflation rates are increasing and will continue to increase. Asset inflation across all classes is already rampant.

Peter Drucker wrote in his book “The Frontiers of Management”: “By now we know, as Schumpeter knew fifty years ago, that every one of these Keynesian answers is the wrong answer. At least they are valid only for special cases and within fairly narrow ranges. Take, for instance, Keynes’s key theorem; that monetary events – government deficits, interest rates, credit volume, and volume of money in circulation – determine demand and with it economic conditions. This assumes, as Keynes himself stressed, that the turnover velocity of money is constant and not capable of being changed over the short term by individuals or firms. Schumpeter pointed out fifty years ago that all evidence negates this assumption. And indeed, whenever tried, Keynesian economic policies, whether in the original Keynesian or in the modified Friedman version, have been defeated by the microeconomy of business and individuals, unpredictably and without warning, changing the turnover velocity of money almost overnight.”

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Additional Readings:

  • Guruspeak: With markets getting heady, it’s time to revisit what investment gurus have taught us (Must Read!)
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