How stocks and other investments have delayed inflation and will release hyperinflation during the next recession.

Interest rates are getting lower, money has become a cheap and easily available asset to companies, and money is constantly printed and injected into circulation. So if there is so much money being injected into circulation, why is there still such low inflation? I think there is, in fact, a lot of inflation but just not on consumer products like we are used to. Inflation is actually what has been happening in the investment markets instead. Think about where all the cheap and newly created money has been flowing to: banks, companies and governments. Companies use it to invest and buy back stocks resulting in growth based on money that still has to be earned. Banks use it to offer cheap derivatives allowing small investors to pump a lot of money into investment markets with a click of a button. In addition, individuals cannot earn anything significant on a savings account anymore, so there is an unseen growing amount of investments and investors. Also, governments have so much debt these days that I’m not even sure what they do with it anymore.

Once people start to (panic-)sell these days, the money flows back into the hands of the consumer. To underbuild this money flow theory, have a look at the markets when people panic-sold. Every investment market went down, and no money was flowing into another investment market (eg. commodities, crypto, stocks etc.). So it would seem that the investors that have sold are just converting all investments into cash and nothing else really.

The problem with the above is that when the majority of the newly-printed money that was previously inflating the investment markets will be back on individuals’ bank accounts with the added profits ready to spend and/or hold while the number of products and services remains unchanged, or even reduces (eg. effect of Corona Virus). Will this then cause hyperinflation on consumer goods and services? Well, the money might not directly be spent in large numbers, but some of it will. The people that lost confidence in governments and investment markets are still going to reinvest, just not in government bonds or any marketable investment really. The safe alternative investment that could be preferred instead of a regular savings account is real estate investment. If we start inflating house prices, this will result in higher rent, a heavily weighted factor in inflation. I think it is very likely that money will exit the markets and will lose it’s purchasing power very soon on the consumer market.

If this theory is correct, then people that have been growing their net worth with investments and sell before or at the start of a recession, inflation might set them back to the same buying power they had when they started investing. And people that did not invest at all would lose a lot of their buying power. The only winner I could think of, would be the ones earning money in this bull run and shorting a coming recession. Although the latter requires extreme timing of markets.

So what could be happening after this event according to my thoughts? People lose trust in currencies that are easily printed by national banks, and this currency crisis might turn people and governments into using blockchain technologies as a mean of having transparent money supply.

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