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The Myth of Contemporary Deflation

I wonder how many others are getting fed up with all the hysterical and ridiculous talk and hyping of the threat of "deflation" that we keep hearing in the media lately. The more I have pondered over this issue, the more I have come to realize that those who espouse the idea that we are experiencing deflation, or threatened by deflation, are either the victims of misunderstanding, ignorance, and hopelessly muddled terminology, or else purposeful propagators of misinformation.

It seems to me that most of those who continue to scare us with the boogeyman of "deflation" are using a vastly overbroad and misleading definition of deflation, namely, that deflation is merely a fall in price or prices ---- of anything. Yet this is not only an economically incorrect viewpoint, it is so all-encompassing as to be almost meaningless. Let me offer my definition of deflation, that which is not only the classic historical definition, but which takes into account both Austrian monetary theory and the former colloquial understanding: Deflation is a decrease in the money supply, leading to a fall in the general price level.

Notice the key idea: a fall in the general price level, or in the "cost of living", if one prefers. By this definition of deflation, which I consider the only valid and useful one, the collapse of a particular asset bubble, such as in real estate and equities recently, has nothing necessarily to do with deflation at all. Only when prices across the board see a decline can we be seeing any real deflation. This simply makes common sense, as inflation has been long defined by the exact converse situation, an increase in the money supply leading to an increase in the general price level. By the widespread current and incorrect definition, focusing on particular asset classes, one could also simplistically (and erroneously) say that due to the falling price of computers and electronics in the 1990s and 2000s, we were therefore experiencing deflation, yet everyone knows that such an argument would be ludicrous. And curiously, I know of nobody who tried to argue that due to the falling price of gold and silver during the first half of that same time period, we were therefore somehow experiencing deflation then as well. Yet today, with the recent (and most likely ongoing) collapse of two obvious asset bubbles, in real estate and stocks, we are somehow supposed to accept that deflation is happening today.

Deflationists seem further muddled when it comes to the topic of credit and debt. They like to imply or outright assert that since overall private credit is falling in the USA right now, that that is somehow "deflationary". This demonstrates a profoundly confused understanding of just what money actually is. Yes, it is true, under our current fiat monetary system, all (fiat) money is issued as debt, so in that sense, money is debt (or credit, depending on one's point of view). However, the key mistake they then make is assuming the converse: that all debt is somehow also money. This is WRONG! It is absurd to assume that since our money is debt, then somehow all debt is money. To believe that our economy faces deflation due to contracting credit, one must also hold that our economy was experiencing rapid and unprecedented inflation during the whole prior period when credit was expanding --- and this is and was demonstrably not the case.

For example, overall credit in the US economy more than doubled in the period from 2000 to 2008. Did we therefore experience a more than 100% increase in the overall price level (colloquially defined "inflation") during that period? NO! In fact, if deflationists want to lump the actual money supply in with total credit to determine and define deflation, then they have to do the same to define inflation, and by that rationale the overall price level should have increased by more than 13 times since 1980 alone, when in fact it increased by around a factor of 3.

Latter-day deflationists also have the small problem that there is not ONE historical example of the threat they keep trying to warn us about. Japan in the 1990's and 2000s is often held up as the classic (and really, only) example of recent deflation, but again, this is simply incorrect. Like us today, Japan experienced a collapse in several overblown asset bubbles, notably in real estate and equities, both of which collapses, it must be noted, were significantly more severe than the current corresponding collapses in the USA. Yet even in this case, the Japanese never experienced a declining general price level, save for a very slight one of around 1% for a single year. Some "deflationary threat"! Yes, even during their so-called "deflation", prices outside of the collapsing asset bubbles continued to increase, and continue to do so today.

It should be noted that deflation CAN exist in an economy, and has been seen in the past --- but only under a non-fiat (i.e., "hard") monetary system, one backed by gold and silver. The USA experienced significant deflation in the period of 1929-1933, which incidentally ended almost to the day that Roosevelt took us off the gold standard. Overall deflation was also experienced in the period of the 1870s to the 1900s, as economic output increased faster than the (gold) money supply, leading to generally falling prices. Notice that this last, roughly 30 year interval coincided with the single greatest period of economic expansion in US history --- so much for the "economic threat" of even true deflation!

I think the widespread current talk about deflation is a red herring at best, and purposeful establishment propaganda at worst. As always, the REAL threat to the savings and livelihood of the average citizen during a time of rampant governmental overspending and overborrowing is currency depreciation and price inflation, NOT the opposite, as has been demonstrated by innumerable historical examples. It is inflation, not deflation, which is also the much more insidious process, as it penalizes and impedes long-term planning, saving and thrift. I am convinced that it is largely due to the last 40 or 50 years of inflationary policy that we have become an increasingly irresponsible society focused on short-term thinking, willfully neglecting the long-term ramifications of both our personal financial decisions and those of public policy --- "what's in it for me now?" is the basis on which most people act and vote. Such widespread societal and personal irresponsibility has been noted by historians during similar inflationary periods, such as in the latter Roman Empire, 16th and 17th century Spain and Portugal, and Weimar Germany. It is through inflation that wealth is funneled from the average man to the well-connected political and financial elites, which is why they love to propagandize in favor of inflation, and against deflation, which in contrast rewards savers and penalizes debtors, and governments most of all, they being the largest debtors in the modern era.

I am much more scared of Bigfoot and alien abduction than I am of an appreciating fiat dollar riding in on a unicorn!

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reedr3v's picture

akak, and all of you in the thread

below, thank you for publicly arguing your informed, differing points of view. We lesser lights learn a lot from discussions of this type.

What Would It Take?

You appear to be saying that deflation is impossible. What would you have to see in order to acknowledge that deflation is occuring (using your own definition of deflation)?
I ask this questions because the implications of deflation are very serious and financial decisions need to be made early in order to protect oneself from the consequences. A person convinced that hyperinflation is imminent, and who places a significanrt portion of his wealth in precious metals at current prices can be financially devastated if deflation results in a significant decline in gold and silver prices. A deflationary depression associated with high unemployment means that people invested heavily in precious metals who lose their jobs will be forced to sell their metals at much lower prices in order to get by. Even if hyperinflationoccurs some years later, if a sever deflation occurs beforehand, people who were unprepared for that, will no longer have the means to adequately prepare for hyperinflation either. So the question again is, how long does one wait for enough evidence of deflation to pile up before one begins to take action?

How can you say that deflation is occuring?

I thought my post was fairly clear, but once again, we are NOT seeing deflation today, and will ONLY see it (hypothetically --- because it is essentially impossible under a fiat currency regime) when we experience a significant and sustained DECREASE IN THE GENERAL PRICE LEVEL! Just the opposite of what is generally being experienced when we are suffering inflation. Why is that so hard to understand?

Just because some select overleveraged, overblown asset bubbles are now collapsing, this has NOTHING to do with true deflation. Has the money supply (money, NOT overall credit!) been collapsing? NO! Have your food, clothing and utility bills been significantly decreasing, or decreasing at all? NO! Is the cost of living DROPPING (something that has not been seen since the 1930s)? NO! Until you can point to ALL of these effects, among others, then deflation by definition and by common sense will NOT be occurring.

But I agree that "the implications of deflation (and inflation) are very serious, and financial decisions need to be made early in order to protect oneself from the consequences." That is precisely why I am so heated on this topic --- because the financial establishment and powers-that-be are purposely, in my view, misleading and scaring the public with the chimera of deflation, in order to prevent them from taking the CORRECT financial decisions, which would be to prepare for inflation and/or sudden dollar devaluation.

Again, you deflationists have not ONE historical example of a fiat currency deflation, ever, and I am sick and tired of your neo-Keynesian bullshit suggesting that "this time it's different!" No, it is not --- governmental profligacy and financial irresponsibility has ALWAYS led to currency depreciation, NOT currency appreciation! Can't you see how it is to the benefit of the political and financial establishment to make you think otherwise, and prepare for exactly the WRONG financial outcome?

I'm sorry, but I find it insulting to even have to waste time addressing such nonsense!

Deflation Is Not In The News

I'm unaware of anything in the media or "financial establishment" alerting the public to the threat of deflation. I'm aware of only a few finacial forecasters who predict deflation.
What I am seeing and hearing on the tv and radio are numerous commercials touting gold and silver as hedges against inflation. Whenever you see an investment being advertised so much to the general public it's usually a pretty good indicator that a change in trend is close at hand.
For some people the cost of living has gone down. The decline in real estate means that it costs less to put a roof over one's head. It has also lead to a decline in condo and apartment rental rates in many areas. If you don't consider that an indicator of deflation that's fine.
That's why I asked you to use your own definition to determine at what point you would acknowledge yourself to be wrong about your forecast. I suppose one could get really stubborn and declare deflation only when the price of health care and education begin to decline. Of coure, by then it would probably be too late to take any meaningful financial action because the worse damage would already have taken place in all the other market sectors.
An important thing to keep in mind when dealing with the markets is that it's dangerous to cling to the belief that a particular phenomenon cannot occur simply because it has never happened before. It's quite possible that those alive today will witness many things never before seen in human history.

On the contrary, its all over the BBC.

How Mervyn King (BoE chairman) will save us from that terrible fate with his magic printing press.


But you are still asking us to believe

that the unbacked, purely symbolic, fiat currency of a financially reckless and massively overborrowing and overspending government is somehow magically going to APPRECIATE in value, in the face of common sense, thousands of years of history, and hundreds of examples of the exact opposite taking place time after time? It is preposterous! You are essentially asking us to believe that the MORE (unsustainable) debt our government takes on, the MORE valuable that debt is going to become!

It is not just the almost innumerable examples of governmental financial excess leading to inflation and currency collapse on which I base my arguments, but simple common sense. I will grant you that there are circumstances today that are unprecedented in world history, perhaps the most important being the fact that for the first time ever, ALL nations are issuing purely fiat currencies, but I see nothing in those circumstances that lead me to believe or suspect that a government currency that can be issued at whim (and more and more IS being issued at whim) is suddenly going to APPRECIATE in value!

Don't Believe

I'm not asking anyone to "believe" deflation is happening. I'm simply asking you to ask yourself what you would need to see with your own eyes in order to admit to yourself that deflation is occuring? Those of us who have been on the lookout for deflation already knew what warning signs to look for and so are naturally the first to announce its arrival. Don't worry though, the evidence should begin to build more quickly soon and make it easy for vitually everyone to recognize.
As for myself, I'd readily admit I was wrong about hyperinflation once I began to see substantially rising prices and the first appearance of $1000 dollar bills in circulation.

You might as well ask me what I would need to see

in order to convince myself that leprechauns and fairies exist as well. An APPRECIATING fiat currency, especially in the current fiscal and monetary climate, is as likely to prance by my window as a unicorn.

And just to clarify, I do NOT necessarily argue that the dollar is going to undergo hyperinflation --- I actually think it is much more likely that we will see either a steady and grinding moderate inflation, or more likely, a sudden, virtually (or perhaps literally) overnight de facto devaluation in the dollar, as the Argentinians experienced with their currency in late 2001. In that case, your watching for rising prices and $1000 bills will avail you not at all, because by the time you realize what is happening, it will have effectively already happened. It is for precisely this reason that I believe the PTB and the financial establishment keep drumming and pushing all this propaganda regarding the supposed "threat of deflation" --- to sucker the sheep into taking exactly the WRONG steps, and being in the wrong financial positions, when the inevitable dollar depreciation or devaluation comes.

Argentina experienced a brief and moderate period of apparent "deflation" as well --- immediately before their sudden currency crash. You may wish to try to gamble and play in this rigged financial casino, first betting on one outcome and then another, but I think it is much wiser to position oneself for the guaranteed endgame rather than betting against the house.

And those who are forced to

And those who are forced to sell metals will push the lowered prices even lower, resulting in panic selling among those who are not forced sellers. And then at the deflationary bottom, just before hyperinflation, no one is left with cash to buy metals, right at the time that they SHOULD be buying metals. Markets rarely follow the expectations of the majority...

And once everyone is screwed there will be the loud screaming masses, "MARKET MANIPULATION!!!". But the market manipulators are in fact...The Participants.

"Ehhh, What's ups Doc?" B.Bunny "Scwewy Wabbit!"E. Fudd
People's Awareness Coalition: Deprogramming Sequence

once again you are short

once again you are short sighted.. tx? how many of the people on your block own metals? I know the 9 houses on my street I am the only one. Maybe 1% of the american population has metals of any quantity to sell.
so how is 98% of the population going to BE forced to sell something they do not already have. Remember the video of the guy trying to sell a 1200.00 gold coin for 50 bucks and no one would buy it? The American public is STUPID when it comes to metals. You precherite regurgitation is wrong.. just plain wrong.
now I ask again.. WHAT DID THE PRICE OF GOLD DO DURING THE GREAT DEPRESSION? Another thing.. this is where prechter also screws up. he looks only at the USA. 5-6 billion ounces of gold in the world. 6+ billion people. The Chinese government has told their 1.3+ billion people to buy Gold and silver. Wouldn't take much to see prices rise would it?

“Defiance of God’s Law will eventually bring havoc to a society.” - Dr. Ron Paul



"We can see with our eyes, hear with our ears and feel with our touch, but we understand with our hearts."

here is my take on it

You are absolutely right on the money in your argument, although I would want to offer up one caveat.

While I agree with you that the conversation about deflation/inflation should be debated on the "money" supply level, one must still look at the price action to gain clues about how the "money" supply is actually affecting the economy. In my observations I have noticed that the prices for commodities and foodstuffs are indeed rising overall; on the other hand, prices for big ticket, luxury items, and other finished goods are either holding flat or decreasing. This is a condition known as price biflation, and is even scarier than bigfoot.

During times of price biflation finished goods are stripped of their basic materials and these materials are sold off. Think scrapping cars (cash for clunkers), stripping wiring out of houses, and the melting of the Athenian statue for her gold. The society is forced to take finished, produced goods and destroy them. Historically, this happens during two times: 1) War, and 2) civilization collapse. Price biflation is a sign of economic doom where growth is replaced by prolonged and severe contraction to be followed by a new era or age.

Are we going to see commodity prices increase? I believe so--international demand for raw materials will still remain. Are we going to see a continued decrease in the price of finished goods? I think that is likely to happen also--as people try to pay down debt, they are going to get rid of their goods for a fraction of what they paid for them. On the retail side, I expect more businesses to close and their inventories to be sold off at a discount. In the medium term, I expect hyperinflation as all of the foreign dollars that were used for international transactions come home to the US (the only place where they can be spent), but in the long term, expect sudden, 100% dollar deflation when no amount of dollars will be able to buy any amount of goods.

So, we are basically headed for collapse and a possible die-off event. The only bright side that I can see to this is that if we somehow avoid a die-off then after the collapse, the society as a whole will be forced into the libertarian ideals of independent, small, self-sustaining communities, smaller government, and personal responsibility. So, in the long run, we win, I guess.

"the only thing that keeps the banking system from failing is general ignorance about how the banking system works."

The latest alert from Shadow

The latest alert from Shadow Stats is very interesting. While Shadow Stats' alternate CPI is still increasing somewhat, the M3 money supply is indeed shrinking for only the second time since 1959.

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"Fully half the quotations found on the internet are either mis-attributed, or outright fabrications." - Abraham Lincoln

Our ever shrinking money supply

Our debt based money system is inherently deflationary. Money is created through debt to private banks and it is extinguished as the principal is repaid. Virtually none of our money is permanent - it is all temporary.

New money, through new loans, is constantly needed to offset the money that is destroyed. And, the interest is never created which means it must be taken from the general circulation. Most of the interest is "spent back" into circulation but not all of it. For example, some accumulates in foreign countries like China and Japan.

The amount of new debt must constantly increase, this is not a linear function as the growth is exponential. The system cannot be sustained as eventually there will not be enough wanting and worthy borrowers.

We hit that point and that is one reason why non-worthy borrowers were given loans that they could not repay. Now, the government has become the borrower of last resort and they are borrowing at unprecedented levels.

If the government starts borrowing less, you will see massive deflation as our money supply starts evaporating.

Fortunately, there is a solution. Government needs to begin issuing and spending money directly into the economy; free from debt. In order to back the money with value, it must be spent on infrastructure that benefits the nation through increased productivity and energy savings.


END the FED before it ENDS US

Ever shrinking my Tukus, as Judge Judge would say.

Compare the US dollar of today to the US dollar of 1913.

Republicae's picture

Debt based money is not

Debt based money is not inherently deflationary, since deflation is a contraction of the money supply which naturally appreciates the purchase value of each monetary unit then I dare say that the history of this fiat debt-based money system is far, far from deflationary in nature. In fact, since 1934 there has rarely been a moment in the fiat system where deflation has taken place, on the contrary, just the opposite has taken place and that is the massive depreciation of the purchase power of the monetary unit through inflation. Your entire premise is completely incorrect, as always, and your conclusions based upon that premise are equally as flawed.

Again, you have been shown historic figures which debunk the entire idea you present. If you look at the rate and level of debt throughout our history you will not see exponential growth, you will see various increases and decreases in the level of debt, but you don’t seem to care about facts do you? If your premise were correct then we would not see fluctuating levels of debt accumulation, but a consistent and exponential growth of debt, since we do not see that exponential accumulation of debt then your premise must be considered logically flawed and your conclusions equally skewed by your premise.

You also miss the point that the government can and has and will embark on a path associated with quantitative easing where it does not require borrowing to spend money into circulation, it simply “prints” it. You see, even though you are not aware of it, you are getting what you want…the government is issuing and spending money directly into the economy and results, as history proves, will be absolutely devastating. You think debt-created money is bad, wait until you have government issued money flooding into the already bloated fiat money pit.

You tout Lincoln's Greenbacks as debt-free money and yet you completely avoid the fact that after the issuance of that fiat money the levels of debt rose four-fold. Your flawed solution is no solution at all. All that would happen is a drastic increase in debt accumulation because of deficit spending by the government. In a very strange twist of logic, borrowing fiat money into existence has, in effect, restrained the government to a minute degree in its deficit spending, take that restrain away and the sky is the limit on debt accumulation since the government will have free reign to spend as though there were no tomorrow since it could simply "print" out money without regard to accrued debt. You really need to consider, for once, what you are really saying.


"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun


January 1, 1861:--
Loan of 1842 .................. $2,883,364.11
....... 1847 ................... 9,415,250.00
....... 1848 ................... 8,908,341.80
....... 1858 .................. 20,000,000.00
....... 1860 ................... 7,022,000.00
Texas indemnity ................ 3,461,000.00
Texas debt ..................... . 181,863.17
Treasury notes issued prior to 1857, used as money .... 105,111.64
Treasury notes, Act of Dec. 23, 1857 ......... 7,281,900.00
Treasury notes, Act of Dec. 17, 1860 ........ 10,000,000.00
Total ........... $69,258,830.72

On June 30, 1865:--
Greenback legal-tender lawful money demand notes ........ $472,603.00
Greenback legal-tender lawful money, new issue ........ 432,687,966.00
Postal currency, legal-tender ............ 9,915,408.66
Fractional currency legal-tender lawful money ...... 15,090,420.10

These were non-interest-bearing GreenBacks, in circulation as currency. The indebtedness came when greenbacks were converted into $2,783,425,879 (gold)interest-bearing national debt. At the same time money in circulation was reduced from $50/person to $3.50/person.

If all debts (private and public) were paid off tomorrow, there wouldn't be a dollar left in existence. We would either have to borrow currency into existence and circulation, or spend into circulation legal tender treasury notes.

All money is money by fiat
{fiat [let it be done, to become, be done]
1) a command or act of will that creates something without or as
if without further effort
2) an authoritative determination : dictate
3) an authoritative or arbitrary order : decree}

Gold bugs never seem to find the time to complain about the bankers' fiat, notes issued by them and circulating as currency, based on alleged gold reserves.

Long ago the Congress of the United States comissioned an investigation into the causes of the Dark Age. The experts found and reported that those dark centuries in Europe were mainly caused by the lack of money. Silver and gold mines were exhausted, the coins went to the East and stayed there. There were fertile soil, natural resources, people willing to work, but they had to sit in darkness because no one thought of spending treasury notes into circulation............

It were bankers who first came up with the idea that we should use as medium of exchange hard-to-find, short-in-supply metals; it were bankers who de-monetized silver when it became almost plentiful.

ahh sot eh east conned the

ahh sot eh east conned the west eurpeaons out of their gold and silver.. the price you pay for being stupid.

“Defiance of God’s Law will eventually bring havoc to a society.” - Dr. Ron Paul

lol... ok. so a dollar in

lol... ok. so a dollar in 1913 buys the same amount of goods as a dollar today..

“Defiance of God’s Law will eventually bring havoc to a society.” - Dr. Ron Paul

Fallacy based on faulty reasoning

The amount of new debt must constantly increase, this is not a linear function as the growth is exponential.

The above is a fallacy that has been repeatedly debunked here on Daily Paul, by G. Edward Griffin among others. He also debunks it in his excellent book, "The Creature From Jekyll Island."

Fortunately, there is a solution. Government needs to begin issuing and spending money directly into the economy; free from debt.

That "solution" is called counterfeiting. The Chinese and other creditors would be justified in going to war - and they might just do it. It would be disastrous for us in America even if they did not. Do you really want Obama and Geithner to be able to print money?

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"Fully half the quotations found on the internet are either mis-attributed, or outright fabrications." - Abraham Lincoln

Griffin has it wrong

Jive_Dadson wrote:

The Chinese and other creditors would be justified in going to war - and they might just do it.

I guess you are not aware of how different nations issue and control their money. Most in the west relinquished this power to the international banking cartel.

In this insanity, our nation borrows money from private banks while we have the power and authority to issue itself for free.

China is rather unique in issuing and controlling their money. They are a creditor nation with huge soviergn wealth funds while we are a debtor nation barely hanging on.

They are kicking our asses financially because we are are essentially owned by the predatory banking cartel.

BTW, the Chinese learned this from us - just research Dr. Sun Yat-sen (father of modern China).

Imagine that super financial engine placed under the hood of a free republic!

And no, I don't want want Obama and Geithner to create our money. The constitution is very clear this should be a function of congress.

Furthermore, the issuance can be controlled by private banks and state governments.

END the FED before it ENDS US

Republicae's picture

Ah, once again you make

Ah, once again you make superficial statements while overlooking some of the more important details of the subject. You seem to be very adept at that DrKrbyLuv.

First, the vast majority of the Chinese people live in poverty, especially in the rural areas. Additionally, they live under a regime that would find no problem murdering them, and indeed it has by the hundreds of thousands, perhaps millions.

Yes, the Chinese have build an economic powerhouse, but it is not as powerful as you and I might suppose by just looking at the surface. The Chinese have painted themselves into an economy corner or hadn’t you noticed? While China’s internal debt appears to have no risk of default, the problem is that indeed it is just as risky as external debt, especially given the precarious position the Chinese have created for themselves. You see they hold one of the most risky debt instruments known to man: U.S. Treasuries! Additionally, the threat of extreme inflation is looming over China just as much as it is over the U.S.

The Chinese appear to think that they can finance all the deficit spending that the U.S. government is hell-bent on creating, but there too is a huge risk. One of the primary risks associated with holding U.S. Treasury Debt is, as you seem to be equally unaware of as the Chinese, that the U.S. doesn’t really have to borrow from anyone and can easily fund its spending by direct fiat monetary creation. This would essentially inflate the debt that China holds away through massive fiat depreciation. The only thing that the U.S. has done is financed China’s rise in economic terms, but not in terms of a safe investment for the Chinese government or people.

The Chinese are “printing” massive amounts of its currency and like all countries these actions will have an effect on the future economic health of that nation. Governments simply shuffle existing fiat debt around, since it can never actually be paid in the real sense of the word. Remember, fiat money is one of two types, it is either a notification of a debt obligation or it is a pure fiat that carries no obligation of actual payment or redemption. Since governments can easily shift from the type of debt obligated note to a purely fiat note, the dangers for any country holding a debt obligation note is substantial. Essentially, all the U.S. need do is stop borrowing through the sale of U.S. Treasuries and start up the “printing presses” to create its money. This is already on the horizon and the Chinese are beginning to realize that they are in a pure bucket of fiat mess.

Now concerning the actual finance engine you mentioned, I would suggest you consider several factors involved in the Chinese economy, one being the extremely massive supply of very cheap labor, another being the force of the Communist Party in China as being a primary fuel of the financial engine, not simply the absence of a central bank like the one that inflicts this country.

I can't wait to hear what you have to say about China is about another year, maybe a year an a half. After Japan's economic system breaks apart in this next year, China's Yuan will be beating a path toward its own destruction. Japan's excesses in quantitative easing will finally have massive repercussions, not only for itself, but for every country, including the U.S. and China. As Japan begins to suffer a fate similar to the Weimar Republic of the 20s, China and the U.S. will wonder what to do next and the EU will be equally as blind-sided by the events in Japan as the U.S. and China.

The water will be rough to tread, but in the midst of it all there are unimaginable opportunities for the person who can read the signs, take full advantage of the quagmire created by these governments and central banks and, if he is smart, he will transform a very real disaster into something that will protect him from the real looming issues that face this country in the very near future.


"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun

Government control of money is the *problem*.

Not the solution. Ron Paul, Ed Griffin and Mises called it right.

Republicae's picture

Exactly! While there are

Exactly! While there are indeed issues with debt, the debt stems from the fact that fiat currency exists in the first place. If you look at the level of public debt compared to the level of the fiat money supply you will find a correlation that began around 1972, there was a steep incline in both. If you look at previous levels of both debt verses the partial fiat money prior to 1972, you will see a rather level path. The fact is that until 1971 gold was still used to repay all foreign debt, it restrained the increases of government borrowing; when that restraint was removed by Nixon, well...


"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun

My 2 Cents...

Just like "inflation"...."deflation" can take quite a while to show it's head on main street. However, let's ponder the information that the Government and Federal Reserve Economist may be playing with. For my example I will only use the Treasury Debt of $12 Trillion.
$12 Trillion x 10 (fractional banking money creation)
= $120 Trillion Dollars created.
TARP + Federal Reserve Balance Sheet = $4 Trillion.

So the Government and Private Banks have created $4 Trillion to catch a collapsing $120 Trillion dollar ponzi scheme. When the TARP Banks start lending that money into the economy (sometime in the future) it will add $40 Trillion in New Money to paper over the collapsing $120 Trillion.....Still $80 Trillion short.

This is in fact "Deflation"..or contraction of the money supply. The original money supply of $120 Trillion Dollars is contracting in real terms as debts continue to default across all aspect of the economy The trick is...the real economy has yet to realize the the size of the fraud (false money creation). At some point, the real economy will recognize this reality (when the banks start to lend their new money again) and then deflation will reverse in the psychological event known as "Hyper-Inflation".
This is a hole to large to re-inflate....and that's when confidence in the currency will be lost!

These numbers are just the "edge of the wedge" when it comes to the real numbers..I simply used them for my example..to get a real idea of the size of the monetary problem we are talking about...check out www.usdebtclock.org

Michael Nystrom's picture


Who are you going to believe? Federal Reserve statistics that say there is no deflation, or your own lying eyes?

Just keep watching those Fed statistics and I guarantee that you'll never, ever see deflation (or inflation, for that matter). Just a nice, stable price level.

But it looks like there have been some unicorn spottings in Colorado:

Minimum Wage in Colorado Becomes US's First to Drop

In the New Year, minimum wages in Colorado managed to drop slightly, making it the first state in the US to record a fall in minimum wages since the federal minimum's adoption in 1938.

Figures have confirmed that wages across Colorado are falling by the rate of 3 cents per hour, from $7.28 to the federal level of $7.25, and the main reason for the drop seems to be the fact that Colorado is one of 10 states that have tied the state's minimum wage to the level of inflation...

The provision set by the state, however, also allows decline in wages, and during the past year, Colorado's consumer price index declined by 0.6%, so the minimum wage has also slipped.

It has been estimated that the much lower consumer price index, mainly on the back of lower fuel prices, should have actually forced the wage to go down by 4 cents an hour, but no state is allowed to go below the decided federal minimum of $7.25.

Colorado may be the first, but I'm willing to bet that it won't be the last.

But like I said, just keep watching those Fed statistics.

Because we all know how honest the Fed is and what a great job they do.

He's the man.
Republicae's picture

If I were a believer in

If I were a believer in deflation I would be hoarding U.S. Federal Reserve Notes and dumping gold/silver since the purchase value of the Dollar will shoot through the roof if, as some claim, we are heading for massive deflation. Gold and silver, on the other hand will suffer from commodity deflation as all other commodities do.

In a monetary system where inflationary depreciation has devalued the currency around 95 to 97%, there would have to be massive deflation, not just a few tenths of a percent, to actually count as deflation.


"We are not a nation, but a union, a confederacy of equal and sovereign States" John C. Calhoun

Michael is quite correct...we are witnessing deflation

Each day we see the dog and pony show whereby CPI and other reports point towards greater stability than is actually occurring in the economy.

Karl Denninger succinctly defined and explained deflation in our debt based system. He refers to this chart

Karl Denninger wrote:

Pay attention to this last graph, as it is the important one in terms of the 2003-2007 "recovery" - note that we went from ~32 trillion in outstanding debt to $53 trillion at the peak, an expansion of 66%.

That's how we "recovered" from the tech bust, and to believe that we will "recover" from this one you must either find a way to expand debt by a similar amount - that is, to nearly $90 trillion all-in - or figure out how you will get $35 trillion in spending in the US economy above and beyond what we're doing now over the next three to four years. In short, we cheated, and to believe we can do it again you must explain how we can cheat once more - and to that degree.

And by the way, for those keeping score - since our monetary system is debt-based declining credit outstanding is the definition of deflation in the monetary sense!



END the FED before it ENDS US

Denninger is wrong on deflation, and so are you KrbyLuv

As I pointed out in the original post above, the key mistake both you and Denninger make is the erroneous assumption that since our (fiat) money is essentially debt, then ALL debt is also somehow money. That is a false syllogism. Debt can act LIKE money in certain circumstances and to a certain degree, but it is ludicrous to suggest that ALL debt within our economy is money. If that were the case, we would have had a drastic and unprecedented INFLATION during the 1990s and early 2000s, as credit expanded rapidly; however, I note that no such thing happened.

But I do find it amusing to witness your persistence in trying to convince us that black is white, and up is down. And apparently, for you, (economic) ignorance is strength.