Most people — certainly most governments and economists — define inflation as a general rise in prices. But this is wrong. Inflation is an increase in the money supply, of which a rising general price level is just one possible result — and not the most common one.

More often, excessive money creation shows up as asset bubbles, where the new money, instead of flowing equally to all the products that are for sale at a given time, flow disproportionately into the ‘hottest’ asset classes. Readers who were paying attention in the 1990s might recall that the consumer price index was well-behaved while huge amounts of money flowed into financial assets, producing the dot-com bubble.

The same thing happened in the 2000s, when excess currency flowed into housing and equities. In each case, mainstream economists and government officials pointed to modest consumer price inflation as a sign that things were fine. And in each case they were simply looking in the wrong place and completely missing the destabilizing effects of an inflating money supply.

Now we’re at it again, with economists, legislators and central bankers using low consumer price inflation as a rationale for even easier money, while ignoring epic bubbles in sovereign bonds, equities, high-end real estate and collectibles around the world. These bubbles are the true evidence of inflation, and since they’re growing progressively larger, it’s accurate to say that inflation is high and accelerating. Let’s take some exotic examples, first from the art world:

Art prices painting a disturbing picture of inflation

The Francis Bacon painting “Three Studies of Lucian Freud” was sold for a whopping $142.4 million as part of a $691.6 million Christie’s sale on Tuesday night, making it the most expensive work of art ever sold at auction.

Some argue that the sale is giving us a message about inflation that investors aren’t getting from the action in gold, the Dollar Index, or the government’s official consumer price index data.

“Asset inflation took another leg higher last night,” wrote Peter Boockvar in a Wednesday morning note. “Thank you Federal Reserve, and thank you Bureau of Labor Statistics for not including art in the consumer price index.”

And this from—would you call it the jewelry world?:

Most expensive diamond ever sold goes for $83.2M

Sotheby’s just dropped the hammer on the most expensive diamond ever sold. The stone, a 59.6-carat flawless pink diamond called the “Pink Star,” was auctioned for $83.2 million, according to Sotheby’s. That made it the most expensive jewel or diamond ever sold at auction.

The previous record for a diamond sold at auction was $46 million, for a 24.68-carat pink diamond bought by Laurence Graff in 2010. The auction follows yesterday’s Christie’s sale of the largest fancy-vivid orange diamond known to exist, a 14.82-carat stone that sold for $36 million—the highest price-per-carat ever paid at auction.

Now, if the super-rich are going to covert their paper currency into tangible things — at a time when governments around the world are contemplating wealth taxes — they need safe, confidential storage. And the market is responding:

Über-warehouses for the ultra-rich

PASSENGERS at Findel airport in Luxembourg may have noticed a cluster of cranes a few hundred yards from the runway. The structure being erected looks fairly unremarkable (though it will eventually be topped with striking hexagonal skylights). Along its side is a line of loading bays, suggesting it could be intended as a spillover site for the brimming cargo terminal nearby. This new addition to one of Europe’s busiest air-freight hubs will not hold any old goods, however. It will soon be home to billions of dollars’ worth of fine art and other treasures, much of which will have been whisked straight from collectors’ private jets along a dedicated road linking the runway to the warehouse.

The world’s rich are increasingly investing in expensive stuff, and “freeports” such as Luxembourg’s are becoming their repositories of choice. Their attractions are similar to those offered by offshore financial centres: security and confidentiality, not much scrutiny, the ability for owners to hide behind nominees, and an array of tax advantages. This special treatment is possible because goods in freeports are technically in transit, even if in reality the ports are used more and more as permanent homes for accumulated wealth. If anyone knows how to game the rules, it is the super-rich and their advisers.

Because of the confidentiality, the value of goods stashed in freeports is unknowable. It is thought to be in the hundreds of billions of dollars, and rising. Though much of what lies within is perfectly legitimate, the protection offered from prying eyes ensures that they appeal to kleptocrats and tax-dodgers as well as plutocrats. Freeports have been among the beneficiaries as undeclared money has fled offshore bank accounts as a result of tax-evasion crackdowns in America and Europe.

Parallel fiscal universe

Freeports are something of a fiscal no-man’s-land. The “free” refers to the suspension of customs duties and taxes. This benefit may have been originally intended as temporary, while goods were in transit, but for much of the stored wealth it is, in effect, permanent, as there is no time limit: a painting can be flown in from another country and stored for decades without attracting a levy. Better still, sales of goods in freeports generally incur no value-added or capital-gains taxes. These are (technically) payable in the destination country when an item leaves this parallel fiscal universe, but by then it may have changed hands several times.

Some thoughts

Clearly, inflation is raging. But because so much of society’s wealth is flowing to the top 1% — who after all can only drive one car at a time and tend to eat no more than the rest of us — inflation isn’t showing up in food, suburban houses or other mass-market products. Instead, trillions of disposable dollars are pouring into real assets that are then hoarded in mansions and high-end storage facilities. This is a truly startling asset grab when you think about it.

The one unique thing about this episode is that past migrations of capital from financial to tangible assets have included precious metals, which tend to be in demand when paper currencies are being mismanaged. That gold and silver aren’t participating is the strongest proof yet that they’re being manipulated to hide the impact of rising debt and excessive currency creation. After all, if you’re going to spend $100 million on art, your financial adviser will almost certainly tell you to diversify into farmland, oil wells and gold bars.

[Hear More: Ronald Stoeferle: The Fundamental Argument in Favor of Gold Remains Intact]

That this hasn’t happened doesn’t mean it won’t. Picture a chart tracking the tangible asset classes of the super-rich: art, jewelry, high-end London and Manhattan apartments, beachfront property, gold bullion, etc., things that exist in limited supply and will be prized no matter what the S&P 500 or 10-year Treasuries are doing. Virtually all the lines on that chart would would be looking parabolic right about now — except precious metals. A billionaire, trying to figure out where to move his next hundred mil would look at this chart and see one outlier, one thing that hasn’t yet gone through the roof, and make the obvious choice. That day is coming.

But looked at another way — in terms of the amount of paper currency being used to buy them — you could say that gold and silver are by far the most popular tangible assets in the world. China, India, and Russia between them have snapped up about 4,000 tons of gold this year, worth about $153 billion at the current price. That’s a lot more than was spent on art. It’s just that these purchases, massive though they are, aren’t moving the price.

But they are moving something: the gold reserves of the western central banks that are sending their gold eastward. Those reserves are falling, at an unsustainable rate. So Western central banks face a tough choice: keep sending their gold to Asia until it’s gone, or let the super-rich bid it into the stratosphere in line with art and diamonds. Sooner or later, the central banks will have to choose door number two.