Disinflation and deflation trumping inflation

This clip has some good discussion of the secular themes restraining global demand. Bart Van Ark, chief economist at the Conference Board, talks about the outlook for the global economy. Here is a direct link.

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6 Responses to Disinflation and deflation trumping inflation

  1. Gary Tooze says:

    Deflation is the lie they use to explain massive QE.

    How many periods of full deflation have we had since 1971 (not debt bubbles)? You can’t find any. This date to the present day is the current life of the US Dollar as a purely fait unbacked exchange mechanism.

    The best argument against Deflation – is really that it cannot happen UNLESS there is a Gold Standard… ie. In a Deflation (ex. The Great Depression) the price of gold wants to go higher but the banksters have it in a fixed rate box. It’s this that causes the deflation. The value of money goes up because the price of gold can’t – and they usually confiscate to remove any natural value increase – they, essentially, freeze it.

    Currency has been pretending to be gold ie store of value. However, gold /silver has a 5000 year record as a store of value. The Central banks would like to think that their manipulation can confuse these roles. Don’t fall for it. Follow what they do… not what they say… stack stack and stack….

    Deflation on a gold standard comes about because bankers fix the price of gold at a certain artificial rate – say $20 an ounce. This means, in a proper classical gold standard, that the $20 note is really acting as a warehouse receipt for an ounce of gold. What’s really happening is that the price of gold wants to go higher and the value of currency goes up because the price of gold can’t.

    The banksters have to fix the rate because if that let normal price discovery occur, they would be a run on the physical backing leaving the banksters with no gold. Once the banksters have no gold then the currency backing is gone. At this point the currency becomes worthless because it can no longer be credibly considered as a receipt for gold. This means a loss of confidence and a rapid hyperinflation ending at zero buying power.

    Because the banksters fix the rate for gold you get deflation in a hard currency because you can’t have a loss of confidence in gold if the gold continues to sit in the warehouses. The deflation means the people have to buy necessities and pay their bills instead of taking delivery of their gold because they earn less and less the deeper the deflation goes although they can still buy things at a lower price but they can’t buy gold because the $20 bill they have buys too many other things they need to survive and the $20 bill takes progressively more labor to earn.

    In an unbacked system you don’t get this dynamic. Price stability depends on prudent management by the banks. It’s the prudent management that keeps prices stable. If you have mismanagement then the system is threatened by a loss in confidence. Because it a debt based system that’s unbacked it easy for bubbles to cause a crash but this erodes confidence. The answer it to use inflation to inflate the debts away and cure the overhang.

    The best possible pretext for QE or increasing the money supply out of thin air is to fear monger deflation. You point to the dangers of deflation which isn’t really there. This brings inflation which they try to hide. In the end they can’t hide it.

    If you price the stock market and commodities in gold over the last ten years the chart shows a deflationary depression right the way through to today. In fact this chart would be what the market would look like if you were on a classical gold standard. The reason things look as they are is constant currency debasement. All the inflation is hiding in stock market asset prices and commodities. When this crashes all the excess cash charges out en masse. There’s now far too much money compared to the real assets after the mega correction Then you get a dam break of inflation which at a certain point leads to a loss of confidence leading to hyperinflation. All unbacked systems eventually go to zero and always have. This is because value is subjective and the currency is only backed by the subjective confidence of its users.

    I don’t know why deflation would ever be allowed in a fiat scheme unless the Central Bankers were suicidal and wanted to give up power. Even if asset markets completely fail and deflation becomes a threat people can be forced to play, as it were, by driving them out of the currency via money printing.

    These Deflationists never talk about the effects of a global rejection of the Dollar as the world’s reserve currency? Because it never happened before and therefore these people can’t comprehend it. Would that be hyper-inflationary? Of course it would because it represents a wholesale loss of confidence in an exchange medium. The velocity of money would sky-rocket. The smoking gun evidence would be trillions of unwanted paper flooding the US like a deluge. See what happens when the Chinese, Arabs and Russians start dumping their dollars, folks – that snowball has just started down the hill.

  2. Tony Hladun says:

    Is there inflation? Well it depends. There is no inflation in the sense that governments define it and that is rising wages and the resulting purchasing pressure. But follow the money. The QE’s have caused massive inflation in bonds, equities and commodities. Think of where the market would be if there had been no central bank intervention and interest rates were about 6% (the long term average). Make no mistake about it; there has been massive inflation. Any attempt to restrain this bubble could lead to a nasty end.

  3. John C says:

    The crux of the argument today is: can central bankers prevent deflation? The answer is, yes but…

    Of course technically they can avert deflation by ‘printing’ money. In our system, unless TheBeard@TheFed and his confreres decide to just actually print free money, all new money/debt is backed by collateral. But in order to increase money supplies beyond what is warranted for the economy, they can just accept lower quality collateral. In short, it’s a shell game.

    So the only real check on central bank largesse is the market itself, such as it is. At what point does the market say “enough”? I don’t believe there will be a sudden collapse of the dollar because it is still in the world’s interest to keep it viable. A longer term decline, for sure, if current global economic trends continue.

    However, to the average good citizen, it’s all moot. Because all that really matters in this debate is the purchasing power of their money. While changes in purchasing power have been mixed (e.g. US housing vs. US health care costs), I think we all know first-hand the overall trend. Hey, remember when oil was only about $10/barrel? Whoa! you say, that must have been way back in, like, the ’70s or something. Try 1999.

  4. aliencaffeine says:

    There will be no inflation as long as the worlds population continues to shrink ie ‘oldersters’ the majority vs the ‘youngsters’. And now with the possibility of US oil independence by 2017 and 50 dollar oil…..no inflation.

    All that printed money is being sucked into the deflation undertow and will just be ‘called back from the front lines’.

    These overlords better get busy and avoid panicking the chickens in the coops. The frenzied cackling is getting pretty loud and desperate sounding.

    I am still on the sidelines with cash. Can’t see the white of the chickens eyes yet.

  5. Gary Tooze says:

    200,000 people were born yesterday.
    Kinda hard to convince be there is no inflation when I go to the Gas station, go to the Pharmacy or Grocery store, pay my kids schooling or property taxes…
    As a kid I bought a chocolate bar for $.10, what is it now? $1.50? No inflation there either?
    IMO Keeping money in the bank waiting for Deflation is going to require a lot of patience. The Central banks around the Globe have already told you what they intend to do – Print, print and more print. If you walk around the block the money in your pocket is worth less at the end of the walk than the beginning. THERE WILL BE NO DEFLATION! Do as the super rich have done for centuries 1/3 land, 1/3 fine art, 1/3 Gold… you’ll be fine.

  6. ricecake says:

    Regarding to the 2nd clip about China leadership change: The guy doesn’t know very well. Although it’s said China’s leadership know they must reform or they will die. Look, the truth about China’s ruling class is this: If they reform they die now. If they keep the status quote they die later. So it’s no brainer China’s rulers will do whatever they can to keep doing the same thing same corruption for as long as they can until they die.

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