The Austrian Case for Inflation

By: Gordon Long | Thu, Nov 5, 2015
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Chris Casey

FRA Co-Founder, Gordon T. Long interviewed Chris Casey of Windrock Wealth Management on the concept of inflation and other applications of Austrian economics to investment theory. Mr. Casey, an Austrian economist, is a frequent speaker and writer on macroeconomic topics and their related investment implications.


What is Austrian Economics and Why Does it matter?

The Austrian school offers the "most realistic interpretation" of society and economics according to Mr. Casey. Gordon agrees in noting that "mathematical models are only as good as their assumptions." While equations and models may be useful as a construct to frame concepts, any social science cannot be scientifically tested due to the inability to control the countless variables at work. As such, Mr. Casey prefers the Austrian approach which "looks at basic self-evident axioms as it relates to mankind in nature and then uses deductive reasoning to describe how the real world works." According to Mr. Casey, the unique Austrian explanations of inflation and the business cycle (recessions) have direct applications to practical investment ideas.


The Austrian Explanation of Recessions

Most mainstream economists believe recessions are inherent to capitalism since their repeated cycles largely began during the industrial revolution. The Austrian school recognizes a different causation occurring at the same time: fiat money with or without central banking. By artificially increasing the money supply through fiat money, interest rate levels are temporarily lowered. This incents businesses and individuals to make investment decisions they would not otherwise have made: in short, malinvestments. Recessions to liquidate the inevitably follow monetary mischief.


The Austrian Explanation of Inflation

The Keynesian school of economics has two theories of inflation which fail to comport with reality and are theoretically faulty. Their "demand-pull" explanation requires full employment and full capacity in an economy, but Mr. Casey demonstrates that fails to account for a doubling of prices during the 1970's during economic weakness.

The "cost-push" theory is equally wrong. By blaming a particular price increase in a commodity such as oil for all price increases, it would have predicted pronounced inflation and deflation over the last 15 years as the oil price gyrated wildly. In addition, it is theoretically faulty as more money spent on oil means less money is spent on other goods and services - which lowers their prices and renders the overall price level largely unaffected.

"Prices are merely a function of the supply and demand for money" states Mr. Casey. More supply means dollars are worth less while higher demand lowers prices as people seek to increase cash balances by selling goods and services through lower prices.


When Will We Experience Inflation?

Mr. Casey believes that "once we have another downturn, the Fed ... will step right in. Once we have that ... we'll really start to see the inflation take off."

What will the Federal Reserve's next move be? They have other options besides another round of quantitative easing. Mr. Casey notes they may stop paying interest on excess reserves held by commercial banks at the Federal Reserve, and they may also lower the reserve requirement which could have a pronounced and immediate impact on increasing the supply of money.


What Should Investors Do?

"Timing is everything, so utilize investments which pay well now, but in an inflation will be a home run."

The Austrian Case for US Inflation

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Gordon Long

Author: Gordon Long

Gordon T. Long
Publisher - LONGWave

Gordon T. Long

Gordon T. Long has been publically offering his financial and economic writing since 2010, following a career internationally in technology, senior management & investment finance. He brings a unique perspective to macroeconomic analysis because of his broad background, which is not typically found or available to the public.

Mr. Long was a senior group executive with IBM and Motorola for over 20 years. Earlier in his career he was involved in Sales, Marketing & Service of computing and network communications solutions across an extensive array of industries. He subsequently held senior positions, which included: VP & General Manager, Four Phase (Canada); Vice President Operations, Motorola (MISL - Canada); Vice President Engineering & Officer, Motorola (Codex - USA).

After a career with Fortune 500 corporations, he became a senior officer of Cambex, a highly successful high tech start-up and public company (Nasdaq: CBEX), where he spearheaded global expansion as Executive VP & General Manager.

In 1995, he founded the LCM Groupe in Paris, France to specialize in the rapidly emerging Internet Venture Capital and Private Equity industry. A focus in the technology research field of Chaos Theory and Mandelbrot Generators lead in the early 2000's to the development of advanced Technical Analysis and Market Analytics platforms. The LCM Groupe is a recognized source for the most advanced technical analysis techniques employed in market trading pattern recognition.

Mr. Long presently resides in Boston, Massachusetts, continuing the expansion of the LCM Groupe's International Private Equity opportunities in addition to their core financial market trading platforms expertise. GordonTLong.com is a wholly owned operating unit of the LCM Groupe.

Gordon T. Long is a graduate Engineer, University of Waterloo (Canada) in Thermodynamics-Fluid Mechanics (Aerodynamics). On graduation from an intensive 5 year specialized Co-operative Engineering program he pursued graduate business studies at the prestigious Ivy Business School, University of Western Ontario (Canada) on a Northern & Central Gas Corporation Scholarship. He was subsequently selected to attend advanced one year training with the IBM Corporation in New York prior to starting his career with IBM.

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