Tag Archives: deflation

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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Very Deflationary Outcome Has Begun: Blame the Fed, by Mish Shedlock

Central bank inspired asset price bubbles eventually pop, and popping bubbles are deflationary. Today the 30-year bond yield dropped intraday to .6987 percent, which certainly suggests deflation. That may be the low for yields, but the economy is going to follow the stock market and that also suggests deflation. And look whats happening to the oil market. Watching the Federal Reserve’s balance sheet, people have been expecting inflation since the last financial crisis. Wouldn’t it be just like markets if we got debt deflation and depression instead? It might mean we don’t get that new high in gold many are now predicting. From Mish Shedlock at moneymaven.io:

The Fed blew three economic bubbles in succession. A deflationary bust has started.
Flashback January 6, 2020

Ben Bernanke Just Won’t Stop Making a Fool Out of Himself

Former Chairman Bernanke says Fed Has Many Tools to Deter Recession.

Dear Mr. Bernanke

Please do yourself a favor and stop making a fool out of yourself.

For starters, let me point out it was indeed impossible to unwind the Fed’s balance sheet. How far did you get? And what is the Fed doing now?

Secondly, you would not know inflation if if jumped up and spit you in the eye. You and your group-think buddies never consider asset bubbles as inflation.

Economic Challenge to Keynesians

Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.

My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.

BIS Deflation Study

The BIS did a historical study and found routine deflation was not any problem at all.

“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.

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Grab Your Bits and Shoulder Your Kits, We’re Going In! by Raúl Ilargi Meijer and Alexander Aston

The coronavirus may come to be seen as the beginning of a new era in human history. From Raúl Ilargi Meijer and Alexander Aston at theautomaticearth.com:

This is a new essay from Alexander Aston. He describes how once the world has passed through the -narrow- bottleneck of the coronavirus and its effects on our societies, which are long overdue for a redo, and on the central bank-engineered distortions of the markets that are -make that were- supposed to be the foundation that allowed us to flourish, there will be a better world waiting.

I’m all for it, and I have no rational issues with it either, but when I read“..these are the moments at which humans are the most creative and most inspiring”, my warped mind can’t NOT think: ..yes, we’re moving towards a better world, and we’re terribly sorry that you didn’t make the cut..”

Here’s Alexander:

Dear Raúl, I hope you are well. Things are all right on my side. Submitted my thesis, am being examined by the heads of Archaeology for both Cambridge and Oxford, which is a huge, albeit intimidating complement. Otherwise, just watching the world come unglued, so I wrote you something to put up if you like it. All the best – Alex

 

 

A mighty space it was, with gigantic machines here and there within it, huge mounds of material and strange shelter places.

And scattered about it, some in their overturned warmachines, some in the now rigid handling-machines, and a dozen of them stark and silent and laid in a row, were the Martians—dead!—slain by the putrefactive and disease bacteria against which their systems were unprepared; slain as the red weed was being slain; slain, after all man’s devices had failed, by the humblest things that God, in His wisdom, has put upon this earth.”

– HG Wells

 

 

It took until the first two months of 2020 for the long Twentieth Century to finally come to an end. One thing now seems absolutely clear, this will be the decade that the majority finally come to understand that things are never going back to “normal.” To be sure, the complex entanglements of institutions, narratives, cultural practices, and economic relationships that emerged during the previous century have been under immense strain these past two decades. Enormous effort has been expended to maintain the inertia of the global system, from the immense violence of imperial politics and regime change wars, to the more subtle violence of economic dispossession by a privileged elite that control the mechanisms of power.

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The Battle of the ‘Flations has Begun, by Tom Luongo

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.

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Fed Trapped in a Rate-Cutting Box: It’s the Debt Stupid, by Mike “Mish” Shedlock

Debt has no beneficial effects and can only make the situation worse when an economy is already debt-saturated. From Mike “Mish” Shedlock at moneymaven.io:

The Fed desperately needs to keep credit expanding or the economy will collapse. However, it’s an unsustainable scheme.

Key Debt Points

  • In 1984 it took $1 of additional debt to create an additional $1 of Real GDP.
  • As of the fourth quarter of 2018, it took $3.8 dollars to create $1 of real GDP.
  • As of 2013, it took more than a dollar of public debt to create a dollar of GDP.
  • If interest rates were 3.0%, interest on total credit market debt would be a whopping $2.16 trillion per year. That approximately 11.5% of real GDP year in and year out.

Total Credit Market Debt Detail

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