The Forever Invariable Truth | Jim Grant on War, Inflation, and What Comes Next
TL;DR
Jim Grant argues that war is inherently inflationary due to resource destruction and money printing, while the Federal Reserve's 2% target institutionalizes permanent currency debasement—a combination that threatens sustained inflation amid current geopolitical tensions.
⚔️ War as the Immutable Inflation Driver 3 insights
War is invariably inflationary
Military conflict overstrains productive capacity by destroying resources and requiring governments to print money to finance destruction, creating the essence of inflation.
Historical inflation required war
Until the 1960s, inflation was exclusively a wartime phenomenon, with wholesale prices actually declining between 1820 and 1930 during peacetime.
Current conflicts sustain high inflation
Ongoing global conflicts and war preparations create marginal bids for production, manpower, and money that will perpetuate inflation well above the Fed's 2% target.
🏦 The Institutionalization of Currency Debasement 3 insights
The 2% target is permanent theft
The Fed defines price stability as a 2% annual debasement of currency, functioning as an unvoted tax that permanently strips purchasing power from workers.
The PhD Standard enabled secular inflation
Abandoning the gold standard for discretionary monetary policy allowed inflation to persist without war, breaking the historical pattern of declining prices during peace.
Inflation acts as a ratchet
Once purchasing power is lost to inflation, it is never recaptured, explaining current social unrest and low consumer confidence despite benign headline economic numbers.
⚖️ Trust and the Credit Markets 3 insights
Trust is the foundation of credit
Citing J.P. Morgan, Grant emphasizes that lending depends on confidence in the borrower's character rather than collateral alone.
Collateral stripping undermines trust
Liability Management Exercises allow borrowers to legally spirit collateral away from creditors through sophisticated legal maneuvers, constituting pervasive double dealing.
Suppressed rates bred complacency
Years of near-zero interest rates led to sloppy loan documentation and reduced underwriting rigor, enabling widespread abuse of creditor rights.
Bottom Line
Investors should prepare for sustained inflation above the Fed's target by recognizing that the combination of global military conflict and a monetary system designed to perpetually erode purchasing power makes the preservation of capital in real terms the paramount challenge.
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