Investments In Intangible Assets Have Kept Inflation Low

Where and how we spend our money has a direct effect on inflation. This extends to which goods are increasing or losing value the fastest. Damn near every economist and analyst seem oblivious to this point. Most tend to take the easy route and simply mix things together into an economic stew. In our bullshit world where media outlets like
Bloomberg tout the message that if you are not in this rising market, you are
missing out, it is understandable that people want in. With this in
mind, it is no wonder the investment world has become a minefield that
is often compared to a casino.

This is key to not only inflation but our future. The
Fed should be ecstatic that so many people are willing to invest in
intangible assets. By not buying  tangible and real items they help to
minimize inflation. An intangible asset is a useful
resource that lacks physical substance. Examples are patents,
copyrights, trademarks, and goodwill.
Such assets produce economic benefits but you can’t touch them and
their value can be very difficult to determine. These intangible assets
are often in sharp contrast to physical assets like machinery, vehicles,
and
buildings. 

This Does Not Tell The Whole Story

The
term tangible assets, in this case, could be used to describe
shorter-term assets, such as
inventory since these items are intended for sale or conversion to
cash. Most tangible assets can be easily converted to cash, this is why
most people include as “tangible” the amount of money in a bank account.
Even though money held by a bank is a paper promise, it falls into a
“grey area” in that it holds the characteristic of being rapidly
converted to something real like property such as cars, houses, or
boats. Some of these accounts can also be used as collateral in case you
want a loan. 

Some things fall into the middle ground between tangible and intangible assets. An example of quasi-intangibles is stock, when you buy stock what do you
really have? You no longer get a certificate as in days of old, this
should send the fear of God into those that worry about hackers. What
you get is a glorified memo in a computer base somewhere, good luck
proving what you have if things go bad. Most likely even getting a
government official to listen will be a huge task. If you do get action
most likely it would be years before you get any of your money back.

This Chart Screams Much Of what We See Is “Bullshit”!

For
a long time, I have taken the view that many “financial assets” have
slipped into the intangible class. Assets such as stocks, pensions, and
annuities harbor many of the qualities of “soft assets.” These are things we can
not touch and often live in the land of future promises. Today many are
recorded on a computer somewhere and paper records of them are having a
difficult time remaining current and in good order. Simply put, many
people are not even sure where they have stored their wealth.

The theory that investments in intangible assets minimize inflation may
be a chief reason government savings and wealth-building programs are
centered on driving money into such assets. Over time, this has the potential to result in
the collapse of the financial system. In our complex interdependent world, this
would most likely hit the economy extremely hard, and the contagion from
such an event could easily spill over and tear apart society. 

To
divert criticism of the fact no bona fide program exists which allows
people to truly protect their wealth or preserve their purchasing power
from inflation the U.S. government issues a type of Treasury security
known as TIPS. This stands for, Treasury inflation-protected securities,
these are indexed to inflation in order to protect investors
from a decline in the purchasing power of their money. Sadly, even TIPS
fail to hold up under scrutiny in that they are tied to the CPI which
understates the true rate of inflation. 

To be clear, I view the
dollar as the best of the four major fiat currencies,
however, I expect all of them to come under attack in the near future.
Circling back to the growing danger resulting in policies encouraging
people to invest in intangibles to lessen inflation. When money is
created or printed it has to go somewhere, this has been fueling the
“everything bubble.” This is not the key driver of inflation. The
main reason this newly created money has not resulted in massive
inflation is rooted in the fact it is being diverted from goods everyone
needs to live and into the intangible assets described above.

When
you consider the amount of interest in cryptocurrencies and other
inflation hedges it is easy to argue many investors are losing faith in
the central banks and fiat currencies. A monetary crisis and the chaos
that comes with it may very likely be coming down the road. The fact
that over the decades, growth in intangible assets and the money supply
has vastly exceeded the growth in real and tangible assets is
problematic.  

There has been little resistance to moving investors into intangible
or quasi-intangible assets because it is easier to own intangibles than
deal with taking care of “real things.” This could account for part of the
mismatch in growth between these two kinds of assets. Currently, the
gap
is so large that even if you allow for a great deal of the wealth
stored in intangible assets to be washed away there will still be enough
cash and credit available to create inflation. Ironically a huge
washout in the value of this type of asset could become a driver of
inflation by igniting a shift into hard assets.

All
this can be a difficult concept to grasp. When looking at soaring house
prices, we should view the cause as more driven by inflation than
because of a falling dollar. The important point is that everything is
relevant and values and prices change. With this in mind, the one thing
we as individuals should try to avoid is putting our wealth into
something intangible that could vanish during the night.   

 (Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)