From Raúl Ilargi Meijer at theautomaticearth.com:
When David Bowie died, everybody, in what they wrote and said, seemed to feel they owned him, and owned his death, even if they hadn’t thought about him, or listened to him, for years. In the same vein, though the Automatic Earth has been talking about deflation (for 8 years, it’s our anniversary today) and the looming China Ponzi disaster for a long time, now that these things actually play out, everybody talks as if they own the story, and present it as new (because, for one thing, well, after all for them it is new…).
And that’s alright, it’s how people live, and function, they always have, and no-one’s going to change that. It’s just that for me, I’ve been wondering a little about what to write lately, because I’ve already written the deflation and China stories, many times, before most others tuned into them. But still, it’s strange to now, as markets start plunging, read things like ‘Deflation is Here’, as if deflation is something new on the block.
Deflation has been playing out for years. Central bank largesse has largely kept it at bay in the public eye, but that now seems over. Debt deflation is inevitable when -debt- bubbles burst, and when these bubbles are large enough, there’s nothing that can stop the process, not even miracle growth. But you’re not going to understand this if and when you look only at falling prices as the main sign of deflation; they’re merely a small part of the process, and a lagging one at that.
A much better indicator of deflation is the velocity of money, the speed at which ‘consumers’ spend money. And velocity has been going down for years. That’s where and how you notice deflation, when combined with the money and credit supply. Which have soared in most places, but were no match for a much faster declining velocity. People have much less money to spend. Which shouldn’t be a surprise if, just to name an example, new US jobs pay 23% less than the ones they’re -supposedly- replacing.
As I said a few weeks ago, it’s probably only fitting, given its pivotal role in our economies and societies, that it’s oil that’s leading the way down. Other commodities are not far behind, because demand for -and spending on- them has been plummeting too, as overproduction and overinvestment, especially in China, do the rest.
However you look at present global debt, percentage wise, or in absolute numbers, you name it, there’s never been anything like it. We outdid ourselves by so much we don’t have the rational or probably even subconscious ability to oversee what we’ve done. We live in the world’s biggest bubble ever by a margin of god only knows how much. And that bubble will deflate. It is already doing just that.
To continue reading: Square Holes and Currency Pegs
