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Edelweiss Journal presented an interesting article below that discussed the change in our language that parallels changes in the way we invest.  Words like “inflation,” “growth,” “risk,” “wealth management” and “illiquid” exploded onto the scene.

Perhaps the most concerning distortion though is the obsession with “growth.” So deeply ingrained it is in our thinking today that one could be for- given for thinking it has always been thus. But it is actually quite new. Increasingly, we see it as a part of the widespread through subtle inflation of expectations.

In 1981 there was one financial professional in the top fifty names on the Forbes rich list.  In 2011 there were a dozen.  During that period the disparity between the rich and the poor expanded dramatically.  Industry gave way to finance as the way to get rich.

During this period there was a huge growth in credit (inflation) and in that environment hard work, thrift and savings gave way to investing in the stock market and instant gratification.

Thanks to the Fed, borrowing was cheap so when you can borrow cheaply why put off buying when you can enjoy it today?

The common view is that there has been little inflation since 1980, but that depends on how you describe inflation.  Yes, there was minimal inflation if you use the CPI as your measuring stick.  But there was a tremendous amount of inflation in the credit market (thank you, Federal Reserve).  The Fed financed the government’s insatiable appetite for deficit spending, which resulted in a tremendous rise in bonds (as interest rates were forced lower) and that helped to inflate almost all asset prices.  Put another way, inflation is everywhere but in the CPI.

Wealth management is a rather new phenomenon.  So is risk management.  People today invest in a different manner than they did in the 80s and before.

They point out that capital is not money.  Capital comes from saving and investing the savings.  Money is created by central banks.  Capital is scarce, and money is infinite.

They conclude with the following:

“As stock markets blink green on more QE supposedly making us all more wealthy developed world is saving less than it has at any time since WWII. And as central banks are conjuring up ever more liquidity, the, more thoughtful observers scratch their heads over the lack of collateral in the system. Of course, the problem is solvency, not liquidity. Capital comes from savings, and the policy of cheap credit with its inflation of time preference has encouraged spending, not saving. Scarce capital is growing ever scarcer.”

We are also increasingly mindful of conversations with friends, family and colleagues that reveal a widespread perception that something is very wrong, though people can’t quite put their finger on what it is. As we have just argued, we think the answer is that the inflation of credit has driven an inflation of asset prices, which has driven an inflation of future expectations, which has driven an inflation of time preference… and that while the consequences of these various inflations are profound, the new language of inflation, which it has spawned, is shallow. Therefore, not only is there insufficient capital to ensure future prosperity and insufficient realism to deal with the future this implies, there is insufficient linguistic precision for most people to articulate the problem let alone understand it.”

Edelweiss Journal, November 4, 2013

Most people think that “investment” or “diversification out of the dollar” are main the reasons to move some of your money offshore.  Jeff Clark and Dennis Miller have a different take on this.  Be sure and check out what they have to say in today’s Featured Articles section below.  They offer some very valuable and interesting information that you should be aware of.