Since the height of the financial crisis, the price of gold has soared, oil prices have surged, the US dollar has somewhat declined against other currencies, and US consumer price inflation has only inched up slightly.
This can be largely explained by three dominant realities in the post-financial crisis world: loose monetary policy, weak economic growth in the developed countries, and stronger growth in the developing countries.
Loose Monetary Policy
Global monetary policy has never been so accommodative.
The US interest rate is at the historically low level of 0.25 percent and the Federal Reserve is for the first time conducting quantitative easing. Something similar is occurring in many other countries.
As a result, the availability of fiat currencies has greatly expanded. The availability of alternative hard currencies like gold and silver, however, did not change that much, so their value has soared against most fiat currencies.
Commodities like oil and copper also benefited from the debasement of fiat currencies. However, they haven’t benefited as much as gold and silver because they’re not as easily stored and are carried in small quantities, so they’re not considered alternative currencies.
Among fiat currencies, the US dollar carries one of the more accommodative monetary policies, so its value has depreciated moderately against many other fiat currencies.
Weak Economic Growth in Developed Countries
The global financial crisis was caused by an enormous asset bubble in the developed world.
While they’re growing, asset bubbles allow people to live beyond their means. When they burst, they deplete the wealth of these same people.
Many countries in the developed world are nursing an asset bubble collapse. They're broke and can’t recovery swiftly.
Consumer inflation, therefore, is low in countries like the US as consumers simply don’t have enough money to drive up the price of goods.
Strong Economic Growth in Developing Countries
In the years leading up to the financial crisis, developing countries (mostly China) earned an enormous amount of money selling to US consumers. They stored a lot of that cash in their foreign exchange reserves.
After the financial crisis, their savings are now bankrolling strong recoveries that predictably outpace those of developed countries.
Growth in the emerging market economies are more commodity-intensive compared to the developed countries due to the emphasis on industrialization and urbanization. Their growth, therefore, has driven up the international prices of commodities like oil and copper, whether they’re sold in the US or elsewhere.
Contrastingly, costs like real estate and personal services are mostly confined within the country, so the prices of US real estate and personal services have stayed stagnant.
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