Money for Nothing, Inflation for Free

“Transfer payments have reached a higher share of personal income than interest and dividend income,” notes Rob Parenteau, highlighting another issue that plagues I.O.U.S.A.

“Together, that means over 30% of the U.S. personal income flows are now being earned for no increase in work devoted to production of goods and services (although we do recognize loans earning interest may, in fact, finance increased production, rather than financial market speculation). The more people get paid without directly producing goods and services, the higher the inflationary bias likely to arise in an economy. Purchasing power without production is another, perhaps more accurate, way of depicting the old saw about ‘too much money chasing too few goods.’

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“People spending money who did not produce anything to get the money — now, that’s a recipe for inflation. In this regard, the major rise in transfer payments from 1966-76 may have played a role in the original onset of the stagflationary ’70s, while the surge in interest income from 1978-82 may have contributed to the second wave of stagflation. Higher money incomes without increased production tends to lead to higher prices, unless, of course, saving rates among money income recipients rise sufficiently.”

Rob will once again bring his comprehensive brand of economic analysis to this year’s Investment Symposium. He’s just one of many not-to-be-missed speakers… check out our impressive lineup, here.