Something very odd is going on in global stock markets this summer. Stocks seem to be rising for no apparent reason. Few investors have much confidence in an economic recovery. There is no new miracle technology to produce profits from nothing.
Why then do stock markets continue to shift higher? Is this not people losing confidence in money as a store of value? And that pushes them into buying shares by default? The gradual shift out of money is driving stocks up.
This has been seen before in nations where money printing and debt got totally out of hand. Germany financed the First World War by printing money and then did the same to pay reparations to the victors.
The result was the roaring hyperinflation of 1923 so brilliantly captured in the book ‘When Money Dies’ by Adam Fergusson that was published in another inflationary era, the 1970s.
A soaring but volatile stock market that made some speculators rich was a feature of the Weimar Republic, and so was hyperinflation that turned those dependent on government bonds or pensions into paupers. Is that where a higher and higher stock market is pointing today?
Money printing on the scale we have witnessed over the past four years can only really have one consequence: inflation. But inflation is not something that spreads equally in all directions. It’s a nasty distorter of investment allocation and favors the rich with real assets over the poor who have nothing to help them with rising prices.
It is true we have not seen retail prices surge ahead in the manner of a hyperinflation yet. We got much closer in the 1970s with monthly price rises in the shops.
But if history is any guide then that is where we are going. Savers who hold cash or cash equivalents like bonds will be hit hardest, and although it will turn very volatile, the stock market offers some protection against inflation.
After all somebody will always be benefiting from rising prices. The Oil States, for example, are profiting hugely from high oil revenues that must be at least in part due to the effect of money printing on commodity prices.
The problem is that this sort of wealth transfer can get completely out of hand with nations as well as individuals becoming impoverished while the rich inherit the earth.
Rising bread prices gave us the Arab Spring a couple of years ago though its aftermath is actually greater poverty for the nations concerned as the rich have fled with the money and expertise. Who actually wants to live in an unstable post-revolutionary state, unless they are so poor that they have no choice?
So we’ve already seen the start of the impact of money printing on the world’s politics, society and economics. Optimists believe an automatic recovery is at hand but realists are starting to plan for something very different.
You are not going to read very much about this in the conventional media are you? It’s scary stuff.