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Originally Posted by jamesqf
But is this because of inflation - a change in the value of the currency - or is it because of supply & demand: e.g. food prices going up because of the Russian crop failure, other commodities rising because of increased demand from China/India, etc?
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Well, this current ramp up correlates well to the second round of Quantitative Easing (QE2) which is monetizing government debt and thus, reducing the value of our currency. The last jump in commodity prices happened during QE1...
A crop failure might account for one commodity, but seeing essentially all of them start climbing at the same time indicates a currency devaluation.
Quote:
Originally Posted by jamesqf
Try a little thought exercise: you live on a remote island, which uses actual gold & silver coins for money. You've been used to paying say an ounce of gold a month for your food, but this year the rains didn't come, the crops failed, and all of a sudden you need to pay three or four ounces for the same amount of food. Is this inflation? How can it be, when you're on a gold standard?
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You seem to be implying that a gold standard eliminates inflation. This is laughable and history showed otherwise.
On the gold standard, we had relatively low inflation of long periods of time, but there were dramatic swings from severe inflation to devasting crashes and severe deflation.
In your example, no that wouldn't be inflation unless you were seeing higher prices for the majority of goods and services. This could easily happen during periods of low technological advancement as gold is still being mined and thus the supply of currency is increasing. On the other hand, when technological advancement outpaces gold production, you get rapid deflation and a crash. Inflation tends to be harmful to people that have saved their money, and deflation harms those who borrow.