Subscriber Request: What The Heck Is Biflation? To Survive, Learn This Economic Term

We have a really good subscriber request here at navigatethezoo. A subscriber asked, “I would like to hear your take on the concept of biflation and the US/World Economy.” First, thank you for the request and it is a good one. I have a feeling that this term could become more frequently used in the future and all NTZ readers should take a moment to learn it. As usual, I will break it down so it is easy to understand for everyone on the site.

Biflation is a relatively new economic term and was first coined in 2003. It occurs when you have both inflation and deflation at the same time. It is defined as an increase in the price of commodity or earnings based assets, combined with a simultaneous decrease in the price of debt based assets. So what the hell does that mean?

Biflation occurs in the economy when the price of all the essential stuff you buy goes up in price, while at the same time, the stuff you wish you could buy, (boats, huge houses, your own island), decrease in price. Let us look at how this happens.

The federal reserve prints all this money and injects it into the system. At the same time, the economy does not recover and we have no real job growth. There is enough money in the system so that we can afford the essentials like food, gas, and so on. However, there is a lack of money and stability from the job market and that keeps us from splurging on loans for big ticket items.

Remember, the economy is like an ebay auction. The more people that chase after an item, the more the price gets bid up. Since we are all chasing the basics, we drive up the price of basic commodities. Since we are not chasing big ticket items, the prices of these start to decline.

This definitely applies the US economy in an isolated system. However, in my opinion, the definition for biflation needs to be expanded upon as it pertains to the world economy. The prices of our basics goods are going up for a third reason. There are currently a ton of people in emerging markets that can now only afford the items we call basics for the first time in their lives. For example, many Chinese are now switching from tofu to meat. You see, the Chinese did not eat tofu because they were hippies, they were eating it because they were too poor to afford meat for protein. The Chinese are currently buying a lot of grown food from the US to feed their new livestock population and driving prices food prices up consequently.

The new emerging middle class in global markets is now wealthy enough upgrade to our basics, but not yet rich enough or have the sovereign credit structure to buy big ticket items. I think this will drive the price of food up with dire consequences.

Think of this; if China, the US, and Europe go into a bidding war on food, undevloped nations with get priced out of the market and you will quickly see food riots escalate. Many, economists already think that an escalation in food prices is the real cause of the Middle East and North Africa uprisings. This phenomenon is only going to increase as time goes on.

The fight for the basics rather than discretionary items will be the new normal that we are entering into. I am confident that the United States will survive in this environment; however, you can expect to see an increase in wars and internal conflicts in the less developed nations.