How to grow your wealth during the coming collapse?

THE THREAT OF INFLATION 45

ments are a lifeline you cannot afford to lose. If your savings
are eroded by inflation, the pain is real and your spending may
be cut. There is no free lunch.

■ insidious Cantillon Effects

Cantillon in the 1730s suggested an even more insidious flaw
in the central bank’s reasoning. He said that inflation does
not move uniformly through an economy. It moves with lags,
something Milton Friedman also said in the 1970s. Inflation,
according to Cantillon, moves in concentric circles from a
small core of people to an ever widening group of affected
individuals.
Think of the way ripples spread out when you drop a peb-
ble in a pond. Cantillon said that the rich and powerful are in
the inner circle and see the inflation first. This gives them time
to prepare. The middle class are in the outer circles and see the
inflation last. They are the victims of lost purchasing power.
This Cantillon Effect may explain why wealthy investors
such as Warren Buffett are buying hard assets like railroads,
oil and natural gas that will retain value when inflation hits.
Official measures of inflation are low today but those in the in-
ner circle already see it coming first, just as Cantillon suggested.
If you’re in the wider circles, however, you may stay in
conventional stock and bond portfolios too long and will see
the value of your assets diluted by inflation. You may not re-
alize it until it’s too late, either. The money illusion deceives
everyday investors.
Money illusion has four stages. In stage one, the ground-
work for inflation is laid by central banks but is not yet apparent
to most investors. This is the “feel good” stage where people are
counting their nominal gains but don’t see through the illusion.
Stage two is when inflation becomes more obvious.
Investors still value their nominal gains and assume inflation