Subscribe to John Mauldin's
FREE Publication:

Thoughts From the Frontline

Sign up for John’s free weekly letter and join 1 million of his closest friends.

We will never share your email with third parties

Thoughts from the Frontline

The “Miracle” of Compound Inflation

April 22, 2011

Choose your language

Albert Einstein is famously quoted as saying, “Compound interest is the eighth wonder of the world.” And compounding is indeed the topic of this week’s shorter than usual letter, but compounding not of interest but of inflation. As you might expect, I am giving a great deal of thought as to how we get out of our current financial dilemma of too much debt and deficits that are far too high. While I will use US data for our illustration, the principles are the same for any country.

Let’s start with a few graphs from the St. Louis Fed database (a true treasure trove of numbers). First, let’s look at nominal GDP over the last 11 years, from the beginning of 2000. The data only goes through the third quarter of last year, so sometime this year it is quite likely that GDP will top $15 trillion.

So, the economy has grown by roughly 50%, right? Give…

Discuss This


We welcome your comments. Please comply with our Community Rules.


Page 2 of 2  < 1 2

Arvi Parbo

April 22, 2011, 11:54 p.m.

Dear John,
In addition to inflation, what makes up the GDP seems important in making comparisons tens of years apart. For example, the GDP just before the global financial crash must have included a considerable proportion of activity which not only did not represent but actually destroyed economic value. We seem to be solemnly producing make-believe numbers which do not mean much, if anything. Am I wrong?

Page 2 of 2  < 1 2