Can central banks stop a deflationary tsunami? From Tom Luongo at tomluongo.me:
Inflation? Deflation? Stagflation? Consecutively? Concurrently?… or from a great height (apologies to Tom Stoppard).
We’ve reached a pivotal moment where all of the narratives of what is actually happening have come together. And it feels confusing. But it really isn’t.
The central banks have run out of room to battle deflation. QE, ZIRP, NIRP, OMT, TARGET2, QT, ZOMG, BBQSauce! It all amounts to the same thing.
How can we stuff fake money onto more fake balance sheets to maintain the illusion of price stability?
The consequences of this coordinated policy to save the banking system from itself has resulted in massive populist uprisings around the world thanks to a hollowing out of the middle class to pay for it all.
The central banks’ only move here is to inflate to the high heavens, because the civil unrest from a massive deflation would sweep them from power quicker.
For all of their faults leaders like Donald Trump, Matteo Salvini and even Boris Johnson understand that to regain the confidence of the people they will have to wrest control of their governments from the central banks and the technocratic institutions that back them.
That fear will keep the central banks from deflating the global money supply because politicians like Trump and Salvini understand that their central banks are enemies of the people. As populists this would feed their domestic reform agendas.
So, the central banks will do what they’ve always done — protect the banks and that means inflation, bailouts and the rest.
At the same time the powers that be, whom I like to call The Davos Crowd, are dead set on completing their journey to the Dark Side and create their transnational superstructure of treaties and corporate informational hegemony which they ironically call The Open Society.
This means continuing to use whatever powers are at their disposal to marginalize, silence and outright kill anyone who gets in their way, c.f. Jeffrey Epstein.
But all of this is a consequence of the faulty foundation of the global financial system built on fraud, Ponzi schemes and debt leverage… but I repeat myself.
And once the Ponzi scheme reaches its terminal state, once there are no more containers to stuff more fake money into the virtual mattresses nominally known as banks, confidence in the entire system collapses.
It’s staring us in the face every day. The markets keep telling us this. Oil can’t rally on war threats. Equity markets tread water violently as currencies break down technically. Gold is in a bull market. Billions flow through Bitcoin to avoid insane capital controls.
Any existential threat to the current order is to be squashed. It’s reflexive behavior at this point. But, as the Epstein murder spotlights so brilliantly, this reflexive behavior is now a Hobson’s Choice.
They either kill Epstein or he cuts a deal or stands trial and hundreds of very powerful people are exposed along with the honeypot programs that are the source of so much of the bad policy we all live with every day.
These operations are the lifeblood of the power structure, without it glitches in the Matrix occur. People get elected to power who can’t be easily controlled.
The central banks are faced with the same problem. To deflate is worse than inflating therefore there is no real choice. So, inflation it is. Inflation extends their control another day, another week.
Whenever I analyze situations like this I think of a man falling out of a building. In that state he will do anything to find a solution to his problem, grasp onto any hope and use that as a means to prolong his life and avoid hitting the ground for as long as possible.
Desperate people do desperate and stupid things. So as the mother of all Battles of the ‘Flations unfolds over the next two years, remember it’s not your job to take sides because they will take you with them.
This is not a battle you win, but rather survive. Like Godzilla and Mothra destroying the city. If Epstein’s murder tells you anything, there’s a war going on for control of what’s left of the crumbling power structure.
And since inflation is the only choice that choice will undermine what little faith there is in the current crop of institutions we’ve charged with maintaining societal order.
As those crumble that feeds the inflation to be unleashed.
For the smart investor, the best choice is not to play. Wealth preservation is the key to survival. That means holding assets whose value may fluctuate but which cannot be taken from you during a crisis.
It means having productive assets and being efficient with your time.
It means minimizing your counter-party risk. Getting out of debt. Buying gold and cryptos on program or on pullbacks. Most importantly, it means keeping your skills up to date and your value to your employer(s) high.
And if you’re really smart, diversifying your income streams to keep your options open.
Deflation and inflation are two sides of the same coin (or the same side of two coins). Both are just as destructive.