Inflation clarification

I was thinking about inflation (yeah, I'm usually the life of the party...) and started wondering about the following: when inflation occurs and if no considerable price inflation is happening sometime afterwards, does it mean that a bubble has formed? So that new money either goes into circulation (price inflation) or it is missallocated into a price bubble? And can the combination of high inflation and low price inflation be used to predict a bubble? Or is this a far too simplistic way to look at it?

All that money has to go somewhere and drive prices up due to the increased demand.

I remember back before the housing bust they were talking about rents getting way out of balance with mortgage costs, it cost a lot more to buy a property than you could get from renting it out. Or during the dot-com boom the price of the stock was way out of proportion from the expected earnings.

Maybe high inflation with low overall price inflation would be a good indicator and the industry receiving the bulk of the new money getting way out of sink with the general economy. That's where you make all the money, like the guy that figured out a way to short the housing market by buying up undervalued hedges or something like that which became really valuable when people realized that the market was tanking and wanted some protection from the falling prices.

Anonymous Coward:

All that money has to go somewhere and drive prices up due to the increased demand.

But does it go uniformly? With the US housing bubble, it seems like one industry (housing) received considerably more money than other industries.

I'll try to make my question a bit more concise: if you have an economy that has an inflationary central bank, but has absolutely no other government interferences in the economy, would the new money merely raise prices (almost) uniformly or would there be considerable bubbles?

Wouldn't that depend upon how the new money entered the system?  I'm sure over time, prices would adjust uniformly, but with the average producer and consumer generally unaware of how and when to price in (if they even follow changes) monetary inflation, it's not exactly a smooth or precise process.

Not to mention that usually, we're discussing central banking in an American context, which has the added variable of being the world's reserve currency, allowing debt money to be exported.  Other countries cannot get away with that, and thus have to work within the global banking cartel structure to inflate in as uniform and planned a manner as possible.

 

If you really want to understand inflation and asset bubbles, you need to understand the Compound Interest Paradox.

Price bubbles are an inevitable consequence of fiat debt-based money.  Unless you're an insider, you won't hear about the bubble until it's too late to invest.

My guess is that the next asset bubble with be in the stock market.  It'll either be a broad stock market bubble or concentrated in the financial sector.  Currently, the Federal Reserve is inflating to bail out the banks.  This should show up as huge bank profits in 1-3 years.