Tag Archives: deflation

The Great Deflation Of 2022, by Pento Portfolio Strategies

The case for deflation next year, definitely a contrarian call. From Pento Portfolio Strategies at pentoport.com:

It is not very surprising to me that nearly every talking head on Wall Street is convinced inflation has now become entrenched as a permanent feature in the U.S. economy. This is because most mainstream economists have no clue what is the progenitor of inflation. They have been inculcated to believe inflation is the result of a wage-price spiral caused by a low rate of unemployment.

In truth, inflation is all about the destruction of confidence in a fiat currency’s purchasing power. And there is no better way to do that than for the government to massively increase the supply of money and place it directly into the hands of its citizenry. That is exactly what occurred in the wake of the global COVID-19 pandemic. The U.S. government handed out the equivalent of $50,000 to every American family in various forms of loans, grants, stimulus checks, enhanced unemployment, tax rebates, and debt forbearance measures. In other words, helicopter money and Modern Monetary Theory (MMT) were deployed—and in a big way. The result was the largest increase of inflation in 40 years.

We’ve had some of the highest GDP growth rates in U.S. history over the past few months and the greatest increase in monetary largess since the creation of the Fed. But this is mostly all in the rearview mirror now. Consumer Price Inflation is all about the handing of money directly to consumers that has been monetized by the Fed. It is not so much about low-interest rates and Quantitative Easings—that is more of an inflation phenomenon for Wall Street and the very wealthy.

The idea that Consumer Price Inflation is now a permanent issue is not grounded in science. As already mentioned, inflation comes from a rapid and sustained increase in the broad money supply, which causes falling confidence in the purchasing power of a currency. At least for now, that function is attenuating.

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Geopolitics — A Pivotal Meeting — It’s All About The Dollar [06-20-2021], by Austrian Peter

A lot of provocative ideas, information, and links to other materials about the economy, foreign affairs, and Covid medicine. From Austrian Peter at theburningplatform.com:

My colleague at BOOM Finance and Economics posts a weekly editorial Hat Tip: Gerry: http://boomfinanceandeconomics.com/#/

BOOM seeks out the very best information from authoritative sources and strives for consistency in its quality and trustworthiness. In evidence of this, BOOM has developed a loyal readership which includes many of the world’s most senior economists, central bankers, fund managers and academics. We strive to always have good relationships with our readers. If you want a real edge in understanding the complex world of finance and economics, subscribe to BOOM as a Follower on LinkedIn or as a Subscriber (Free) to the BOOM Newspaper at http://boomfinanceandeconomics.com/#/

THIS WEEK’S EDITORIAL

THE BOOM THESIS ON INFLATION

BOOM’s primary thesis on inflation — Persistent and troublesome high CPI inflation is not coming back in the foreseeable future in the advanced economies because there are just too many dis-inflationary forces in abundance. These include cheap goods from China, Vietnam, India, Cambodia, Africa plus cheap energy, cheap labor, cheap robotics, increased efficiency from computerization of just-in-time supply chains, cheap commodities and aging demographics (more old people than young people).

Also, in the advanced economies, there is no wages growth pressure occurring and those economies are also overwhelmingly services based. Advanced economies increasingly do not manufacture goods, they import them from emerging economies and from China. Many of the advanced economies are based 70 – 80 % upon the provision of services.

So BOOM is in the “higher CPI inflation is transitory” camp which is what the Federal Reserve in Washington DC is saying.

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One Mad Market & Six Cold Reality-Checks, by Matthew Piepenburg

There are some commonly held notions out there that in no way comport with reality. From Matthew Piepenburg at goldswitzerland.com:

Fact checking politicos, headlines and central bankers is one thing. Putting their “facts” into context is another.

Toward that end, it’s critical to place so-called “economic growth,” Treasury market growth, stock market growth, GDP growth and, of course, gold price growth into clearer perspective despite an insane global backdrop that is anything but clearly reported.

Context 1: The Rising Growth Headline

Recently, Biden’s economic advisor, Jared Bernstein, calmed the masses with yet another headline-making boast that the U.S. is “growing considerably faster” than their trading partners.

Fair enough.

But given that the U.S. is running the largest deficits on historical record…

…such “growth” is not surprising.

In other words, bragging about growth on the back of extreme deficit spending is like a spoiled kid bragging about a new Porsche secretly purchased with his father’s credit card: It only looks good until the bill arrives and the car vanishes.

In a financial world gone mad, it’s critical to look under the hood of what passes for growth in particular or basic principles of price discovery, debt levels or supply and demand in general.

In short: “Growth” driven by extreme debt is not growth at all–it’s just the headline surface shine on a sports car one can’t afford.

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Lacy Hunt Warns Fed Has Reached Its Limit, Sees ‘Inflation Today, Deflation Tomorrow’, by Tyler Durden

Lacy Hunt is one of the few economic seers out there predicting deflation, but he’s put together a sterling record through the years and can’t be dismissed out of hand. From Tyler Durden at zerohedge.com:

Earlier this month, Wealthion (a new YouTube channel featuring interviews with today’s top experts in money & the markets) hosted its first online conference, at which economist Dr Lacy Hunt made a strong case in his keynote presentation that deflation — not inflation — will win the day going forward.

He predicts that much of the sudden sharp rise we are seeing in input prices will indeed be transitory. And he presented a parade of econometric data that show many historical precedents why this is likely to be the case.

Of course, the current debt, demographic and technological trends are very deflationary. To those who think that the flood of new $trillions in monetary and fiscal stimulus will trump these, Dr Hunt shows how much of that money just isn’t making it out into the real world.

Instead, it’s pooling up within the banks as massive excess reserves and the banks aren’t lending enough of it out, as shown by the plunge in the Total Loan to Deposit ratio:

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The Greatest Game, by Jeff Booth

This article will stretch your brain a bit, but can’t we all use some mental exercise? From Jeff Booth at medium.com:

“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete”

Buckminster Fuller

Breakthroughs, that step-change our lives for the better, invariably come from something that most people couldn’t see. Our belief of how the world should exist and operate is shaped from looking backwards, not forward, so it makes sense that new paradigms that change everything — face resistance in our minds. Because most people don’t see them, breaking through an existing paradigm needs to provide enough compelling value for users to disrupt an old paradigm. Apple’s iPhone for instance, didn’t copy the market leader, Research in Motion’s Blackberry design of needing a keyboard or selling to businesses who required RIM’s security. It created a digital interface when that wasn’t ‘needed’ and created an entirely new platform that changed the industry as a result. Along the way, the Blackberry died, unable to compete with the value for users, that was now increasing exponentially on Apple’s platform.

That process describes “Creative Destruction” a paradoxical term first coined by Joseph Schumpeter in 1942 to describe how Capitalism works in a “free market.” Entrepreneurs innovate and “create” value for society — and that value gained by society also often “destroys” the former monopoly power. That process and its importance is at the centre of how all modern economies have evolved and given rise to most of the benefits to society we take for granted today. New winners become so valuable that they disrupt existing market power or structures. It is all driven from a near-constant flow of innovative entrepreneurs with bold ideas and the capital backing them that go up against the status quo and are only successful, “if’’ they create value for society.

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Too Busy Frontrunning Inflation, Nobody Sees the Deflationary Tsunami, by Charles Hugh Smith

Debt deflation is inherently deflationary, and we’re heading into the mother of all debt deflations. From Charles Hugh Smith at oftwominds.com:

Those looking up from their “free fish!” frolicking will see the tsunami too late to save themselves.

It’s an amazing sight to see the water recede from the bay, and watch the crowd frolic in the shallows, scooping up the flopping fish. In this case, the crowd doing the “so easy to catch, why not grab as much as we can?” scooping is frontrunning inflation, the universally expected result of the Great Reflation Trade.

You know the Great Reflation Trade: the world has saved up trillions, governments are spending trillions, it’s going to be the greatest boom since the stone masons partied at the Great Pyramid in Giza. It’s so obvious that everyone has jumped in the water to scoop up all the free fish (i.e. stock market gains). Only an idiot would hesitate to frontrun the Great Reflation’s guaranteed inflation.

Unless, of course, what we really have is a tale of reflation, told by an idiot, full of sound and fury, signifying nothing. Everyone frolicking in the shallows scooping up the obvious, easy, guaranteed gains is so busy frontrunning inflation that nobody sees the tsunami rushing in to extinguish the short-sighted frolickers. ( When Does This Travesty of a Mockery of a Sham Finally Implode? 3/3/21)

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Doug Casey on Whether the US Dollar is Headed for an Inflationary or Deflationary Collapse

The answer is all of the above. From Doug Casey at internationalman.com:

dollar collapse

International Man: In the past decade, the Fed’s money printing has created bubbles in stocks, bonds, real estate, and other many areas. It’s likely that the stimulus and money printing will not only continue but accelerate at breathtaking speeds in 2021.

What do you think the prospects are for what the great Austrian economist Ludwig von Mises called a “crack-up boom?”

Doug Casey: First of all, we have to define what Mises meant by a “crack-up boom.” It can occur when the public realizes that money is being printed at a great rate, and it’s likely to continue being printed at a great rate. The public then starts moving out of money to buy anything of real value. All that money is passed around faster and faster, like an old maid card, causing a “crack-up boom.” It’s not a real boom. It’s caused by fear, not prosperity. The desperation of trying to get into real goods and get out of the US dollar creates what you might call uneconomic economic activity.

They won’t try to put the money into productive enterprises, rather just tangible assets that will defend them from inflation. The most famous crack-up boom in modern history, of course, was in Weimar Germany during the early 1920s.

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Inflation, deflation and other fallacies, by Alasdair Macleod

In history’s most economically productive periods, prices have usually fallen, not risen. From Alasdair Macleod at goldmoney.com:

There can be little doubt that macroeconomic policies are failing around the world. The fallacies being exposed are so entrenched that there are bound to be twists and turns yet to come.

This article explains the fallacies behind inflation, deflation, economic performance and interest rates. They arise from the modern states’ overriding determination to access the wealth of its electorate instead of being driven by a genuine and considered concern for its welfare. Monetary inflation, which has become runaway, transfers wealth to the state from producers and consumers, and is about to accelerate. Everything about macroeconomics is now with that single economically destructive objective in mind.

Falling prices, the outcome of commercial competition and sound money are more aligned with the interests of ordinary people, but that is so derided by neo-Keynesians that today almost without exception everyone believes in inflationism.

And finally, we conclude that the escape from failing fiat will lead to rising nominal interest rates, with all the consequences which that entails. The inevitable outcome is a flight to commodities, including gold and silver, despite rising interest rates for fiat money.

Demand-siders and supply-siders

In a macroeconomics-driven world, economic fallacies abound. They are periodically trashed when disproved, only to arise again as received wisdom for a new generation of macroeconomists determined to justify their statist beliefs. The most egregious of these is that inflation can only occur as the handmaiden of economic growth, while deflation is similarly linked to a recession spinning out of control into the maelstrom of a slump.

This error is the opposite of the facts.

Conventionally, macroeconomists split into two groups. There are the Keynesians who believe in stimulating demand to ensure there will always be markets for goods and services, which they attempt to achieve through additional spending by governments and by discouraging saving, because it is consumption deferred. And there are the supply-siders, who believe in stimulating production through lower corporate taxes and lighter regulation. Both demand and supply-siders advocate monetary inflation in the belief that their methods stimulate an economy so that government spending need not be cut.

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Here Is The Stunning Chart That Blows Up All Of Modern Central Banking, by Tyler Durden

Zero Hedge may be on to something: savings go up when interest rates go down, and inflating the money supply can be deflationary. From Tyler Durden at zerohedge.com:

Several years ago, when conventional wisdom dictated that to push inflation higher and jumpstart lethargic economies, central banks have to push rates so low as to make saving punitive and force consumers to go out and spend their hard earned savings, several central banks including the ECB, SNB and BOJ crossed into the monetary twilight zone by lowering overnight rates negative.

Then, year after year, we would hear from the likes of Kuroda and Draghi how the BOJ and ECB will continue and even extend their insane monetary policy, which now includes the purchase of 80% of all Japanese ETFs…

… until the central banks hit their inflation targets of 2%.

And yet, year after year, the BOJ would not only not hit its inflation target but appeared to drift ever lower, as did the ECB, SNB and any other bank that had gone NIRP, confounding all economists and central bankers: why was this happened if rates were negative? Why were consumers not taking their money out of the bank and spending it, pushing inflation higher?

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And the Winner is? Deflation. By Tom Luongo

While central banks may try to inflate their way out of a debt deflation, when the bubble they’ve blown is as big as the current “everything” bubble, such efforts will be fruitless. From Tom Luongo at tomluongo.me:

Back in August I penned a post called, “The Battle of the ‘Flations Has Begun.

With an historic 2000 point drop in the Dow Jones Industrials on Monday in response to Saudi Arabia and Russia declaring an oil price war on, well, everyone it’s clear that one of the two ‘flations, deflation, has won out.

In retrospect the timing out that post was pretty good, because just a few weeks later the repo markets seized up, SOFR zoomed to an all-time high of more than 10% and the Fed was awoken from its slumber to begin intervening to keep markets from collapsing.

It initiated a reflation trade based on the hope that the Fed just being there was all that was needed to restore confidence in global markets.

In that post I made the point that the choice between inflation and deflation is a non-choice. They are two sides of the same coin. The question is only who benefits from which side.

Those in power always choose inflation because, in their minds, it is less upsetting to the social order than deflation.

And their power rests on maintaining the current social order.

Deflation benefits savers and, frankly, normal people who don’t have access to new money at the lowest available prices, those set by the Fed’s discount window.

It gives them back power stolen from them through inflation.

The media helps this narrative limp along bamboozling all of us with poorly-conceived first order analysis of why we want inflation while refusing to admit they are a recipients of this government/central bank largess through advertising fees paid with a portion of this fake capital.

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