Deflation and the state

http://www.telegraph.co.uk/finance/economics/6592425/Core-deflation-in-the-US-continues-to-gather-pace.html

Some excerpts:

Janet Yellen, the head of the San Francisco Fed, said emergency measures had prevented the US economy from sliding into a “black hole of deflation”, insisting that it is still far too early to talk of tightening policy.

While the Fed appears split over its exit strategy, even arch-hawk Richard Fisher of the Dallas Fed said the sheer scale of excess plant will curb prices and wages for a long time. Capacity use in manufacturing is near a post-war low of 67.6pc.

Deflation is not the demon here. Deflation is actually the normal state of the world; or at least, it would be if it were not for politics. We should embrace deflation for the beneficial dynamic it is especially after 90 years of unrelenting and artificial pumping of inflation by government. Deflation will bring respite to those of us that for the past 30 years though living within our means, have witnessed our wealth and our savings pillaged and ransacked by self serving politicians and bankers.

Inflation punishes those people that make the effort to pull themselves up by their own bootstraps and attempt to provide for themselves in old age without putting undue strain on public finances. Inflation punishes the prudent and the saver. Inflation encourages reckless behavior and devastates the wealth of those that are taken in by the siren song of debt that promises to allow you to consume today what you could only consume over a longer period of time if you relied on savings.

Deflation is the demon only if you are in debt; and nobody is in deeper debt than the state. And nobody is deeper in debt than the state issuer of the reserve currency.

I readily admit that in the interest of socio/economic development, a degree of deliberate inflation is necessary. But inflation should be monitored, moderated and modulated. I also readily admit that in a democratic society as administrations follow one another in the seat of power, it is impossible to expect any one administration to willingly moderate inflation.

So, yes, I admit that an accelerating inflationary dynamic is inevitable in an environment of competing nation states.

So, why do I bother?

At this point I don’t really know anymore. Somewhere I hope to be able to awaken a sufficient number of people so that we may avoid what usually happens at the end of secular inflationary cycles. I hope we can avert a world war; a world war this one, that will come complete with civilians being packed off to the front and rationing of food and energy.

The key to do that is to force our “leaders” to admit that we’ve made a good go of it for 30 years but that we are now bankrupt. We must admit that the inflationary policies that have helped us postpone the day of reckoning till now, no longer have any traction.  We now need to hunker down, tighten our belts and restore a modicum of balance in our finances before we can return to something resembling the life style of the majority in the recent past.

For those of us that are not in debt, a bout of deflation will give us some breathing room and allow us to live a more comfortable style of life. We’ve been under siege for 30 years; we deserve a break. But a break won’t do us any good if our politicians will resort to the age old trick to engineer a war when state finances are about to blow up.

Accumulate gold bullion and embrace deflation. Gold is a sensible investment for at the very least 10% of your entire wealth. Gold is a good investment now till it will no longer be. I don’t have a crystal ball, but I suspect gold will serve us well certainly for the next five years but possibly as long as ten years. Because we cannot count on politicians to do the sensible thing and we can count even less on Western politicians to do so.

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3 Responses to “Deflation and the state”

  1. Fred Van Says:

    Of course, I see it clearly now. Trade War in this new century is done with printing press money. Who can print the MOST money in order to make its currency fall the MOST, thus gaining an export trade advantage over other nations, called Beggar Thy Neighbor. ( Trade war in the 1930s was done by devaluing the dollar vs gold. ) Also, we are into a world wide debt collapse, affecting even China. The entire world spent the last 50 years using debt to overbuild too many factories, too many shopping centers, too many roadways, too much of everything. Now massive unsustainable debts are overhanging everywhere, and nearly every nation is attempting to keep the debt bubble (inflation) expanding with printing press money. This is why Obama said in his state of the union, that he is going to raise exports substantially. He secretly plans to crash the dollar (via printing press money) which will raise import prices substantially and lower our export prices. Other countries have no choice but to retaliate and print even MORE money and this becomes a world wide death spiral for fiat money. What to do? As I see it, get out of paper money and into things of lasting value. Crude Oil, Gold, farm land, Silver, maybe even stocks in vital industries. As every nation super inflates their currencies, commodities including gold must therefore rise rapidly. We have us a very nasty WORLD WIDE Kondratief Wave winter.

    Fred

  2. Fred Van Says:

    “Accumulate gold bullion and embrace deflation.”

    During deflation, commodities, stocks, wages & prices typically fall. I don’t understand why gold would not also fall. Under deflation, CASH is KING. I would love to see your comments on this.

    Fred

    • guidoamm Says:

      During a typical bout of deflation within the overarching inflationary cycle, I would agree with you.

      My contention is that this is the end of a secular inflationary cycle. Thus we should expect the implosion of credit markets (check) which trigger competitive currency devaluation which, within a floating exchange rate mechanism as we have today globally, will eventually take down all currencies. Thus, I expect bullion will come to be viewed no longer as a commodity but as a currency; the currency of last resort.

      In this scenario, it is not impossible that, at least temporarily, both bullion and the US$ might trend upwards simultaneously. If you follow my public charts, you’ll notice that, at least technically, that is a distinct possibility. In the same charts, you’ll also notice that bullion has been trending upwards in all foreign currencies.

      http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3585763&cmd=show%5Bs180951489%5D&disp=O

      Of course, I don’t know for certain. This is what I expect and how I am positioned in the market.

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