Is Deflation Really a Risk Today?

Phoenix Capital Research's picture

Due to the
overwhelming number of emails I received in response to my earlier article
detailing the behemoth that is the derivative market.


The primary
question I’m receiving is: does deflation pose a REAL risk today?


My response
is absolutely. Remember, the entire
financial system is broken in the US. Until we take our medicine and deal with
the hundreds of trillions of bad debts sitting on the banks’ balance sheets,
there is ALWAYS the risk of another 2008-type event.


The Federal
Reserve has attempted to paper over these issues by offering Wall Street an
endless stream of Dollars. But this hasn’t addressed the underlying issues in
any way. The banks are still insolvent and the derivatives market is still the
primary concern for anyone who works in finance whether they know it or not.


So yes,
deflation is and always will be a potential threat that can erupt at any time.
However, should deflation even take
hold of the markets again, the Fed and other central banks’ responses will
GUARANTEE that it is short-lived and that inflation, then hyper-inflation takes
over in a short period of time.


Bernanke has NEVER admitted that he was wrong about anything. The guy literally
believes he’s an economic genius who can save the world (thanks Time magazine
for buffering his ego). He is 100% positive that his policies are the right
policies. So if deflation reared its head again, he would do the same things he’s
already done (print money, engage in more QE, etc) only on an even larger, more
aggressive scale.


This will
destroy the US Dollar and insure that we experienced either severe inflation
similar to that of the ‘70s or hyper-inflation similar to Weimar. Bernanke’s
nearly pushed into the former already and deflation hasn’t been seen in the
financial markets in over two years.


So you
better believe he’d go all out if deflation poked its head up again. Imagine if
a grizzly bear got up and tried to attack you after you already brought it down
with repeated gunfire. What would you do? You’d blow its head off and then walk
up to the body and shoot it until you ran out of bullets to make sure the thing
didn’t get up again.


Bernanke would
do the same thing to deflation. He’d throw so much money at it that he’d not
only kill it dead, but he’d also kill the US Dollar and send us straight into
Zimbabwe-land without even a moment’s pause.


So yes,
deflation is a threat. And it will
always be. But we might very well not see it again thanks to Bernanke’s
actions. And if it does show up
again, its presence would be very short-lived.


Prepare accordingly,




PS. If
you’re getting worried about the future of the stock market and have yet to
take steps to prepare for the Second Round of the Financial Crisis… I highly
suggest you download my FREE Special Report specifying exactly how to prepare
for what’s to come.


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Again, this
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Stuck on Zero's picture

What a scam.  Scare Americans about deflation (which is good for the middle class and poor) and then inflate by printing zillions and hand it out to your masters on Wall Street.

BW's picture

As long as the treasury market doesn't crash.  

bigargon's picture

Most of these folks (the benake, the banksters, obama) are all Ivy league folks. the ultimate goal is to collapse the world currencies, and put that pesky middle class in its place. after the chaos settles down, there will be a "Breton Woods 2", which will call for a World wide currency, strengthen the world bank and the IMF, so they can make decisions and nullify the laws of nations, all in the name of "Global Financial Stability". All the banksters will have a seat at the table to ensure they are part of the "New Order".

Zero Govt's picture

"..should deflation even take hold of the markets again, the Fed and other central banks’ responses will GUARANTEE that it is short-lived.."

What like deflating house prices since their 2006 peak has been "short lived" ?

The Fed targeted the deflating property bubble in 2008 with QE1 and has achieved precisely zero. In fact it now has fast food joints and empty shopping malls on its own books and can't reflate their values so what chance the rest of the economy?

The Fed controls neither inflation nor deflation, the credit bubble is 40 times the size of its balance sheet, even greater if you include derivatives. Central banks are the King Canutes and Emperors with no clothes all rolled into one. Big windbags one and all  

DavidC's picture

Zero Govt,
There is a difference between King Canute (Cnut) and The Bernank et al. An interpretation of Cnut's 'stopping the waves' was actually to show his sycophantic coutiers that the King was NOT more powerful than Godand thus he COULDN'T stop the waves.

Either way, the Central Bankers, ultimately, cannot win without a reset.


Zero Govt's picture

Many thanks for both the spell-check and the storyline correction on King Cnut.

The alternative to, "Central Bankers... cannot win without a reset" is that central bankers are going to lose (their jobs) with the reset. 

'End the Fed' is gaining momentum and should reach szunami proportions as we see Bernanke drowned in property, stock and economic collapses. Wether he believed his many crones or not he could turn the tide with counterfeit money matters not a jot to this storyline (though his autobiography will no doubt plead his 'innocence' and 'wisdom' all along he knew it would fail!)

DavidC's picture

Well, Bernanke learnt from the best - Alan 'Prove I was wrong' Greenspan.


ak_khanna's picture


Deflation is spreading around the world despite the efforts of the central bankers to avoid it by printing currency.

Inflation is caused when the sum of credit outstanding and currency in circulation increases in comparison to the goods and services available and deflation is vice versa.

The credit outstanding worldwide is shrinking at a much faster rate than the rate at which the central bankers are printing money. The money being printed is just being used to roll over previous debts and is not contributing to job or small business creation which can actually cause inflation by giving a large portion of the population an increased purchasing power.

Moreover deflation is a natural process and is a result of increased productivity which ultimately benefits the majority of population by bringing down their cost of living.


Rogerwilco's picture

About 40% of existing debts cannot be repaid, and if they are written off it will be a hugely deflationary event. There could be cascading cross-defaults, a bank holiday, maybe even serious riots before it's all over.

Some say we can "inflate away" the debts, and that solution sounds attractive, almost painless, until the effects of rising interest rates are factored in. Rising rates will destroy the market value of existing fixed-rate debt and deflate real estate prices -- so deflation is also the end result of the inflation gambit. One look at recent news events shows that raging inflation and high interest rates also lead to bank failures and riots.

Which devil will it be?

yakmerchant's picture

"The Bernanke" going full retard with the printing press assumes that "The Bernanke" and the fed have the best interests of the U.S government in mind.  Sure inflation is pretty much the only way the U.S. government doesn't default in short order, and I think the fed has started to walk a tightrope, and they may be hoping to make it to the other side. But with the clamoring to end the fed, I think they have a hell of a plan to deploy the poison pill if things go wrong.  If I'm an evil bastard and I'm really looking out for the private banks that make up the fed and not the US, and I have the biggest lever in the world,  I'm going to use it to my advantage before they take it away from me.  I'd seriously consider acting like I'm going full retard, printing money left and right, getting everyone scared to death of the dollar, making everyone climb all over each other to buy hard assets, including the crappy real estate I have on my books, dumping the worthless greenbacks into my hands as fast as possible. Then when the time was right (or when they "end the fed"), I would pull the rug out all at once with the biggest, deflation spiral, derivative unwind, liquidity crunch donkey punch of all time.   Couple of well placed defaults in Euro land should start the avalanche nicely.  When the smoke clears I can buy all the assets for pennies on the dollar and foreclose on the rest.   Moral of the story?  Never go full retard.

zhandax's picture

Bond vigilantes will take care of that for them.....

dan10400's picture

I just don't understand the motivation for TPTB to destroy the currency.   I can see the motivation behind them trying to save their butts by bailing out the banks.   The implication that they are deliberatly trying to destroy the currency would defeat that purpose.   Or is it just the belief that they don't know WTF they are doing and will not know when to recapture enough at the expense of the taxpayers and citizens of the US and just take everything down anyway?

anony's picture

Just look back to the beginning for your answer.

Since the FED was conceived the purchasing power of the dollar has declined by 90%.

Whether it's by intention or accident, the result is the same.  Motives at this point are irrelevant.


Bringin It's picture

Dan - I just don't understand the motivation for TPTB to destroy the currency.

You have to see the scenes in Good Fellas leading to when they torch the night club.  First they looted the credit and all the valuables of the business, then they torched it for the insurance.  Think of all the fiat that can be made by knowing in advance.

The toxic swamp is too deep to drain.  Think counterfeit bonds, FTD's, impossible entitlements, peaking oil.  Commence free-fall.

Funny, I can't find the scene on YouTube.  Too bad, because it illustrates the problem perfectly.  Think Mafia and you'll start to get it.

SamuelMaverick's picture

Exactly.  The Mafia calls it a ' bust out', where they squeeze everything they can out of a formerly viable business, run the credit to the max, and then they torch the place after they have gotten all they can and there is nothing left. 

zhandax's picture

Unintended consequences of trying to keep the team from going down.  While they are probably better than we think, they are not as good as they think.

RockyRacoon's picture

It's a matter of options -- not having any, that is.  What they'd like to do and what they have to do are different, and they will opt for the salvation of the insiders.  The entire structure is balanced on the head of a pin.  There is only one option and it's not pretty.

BlakeFelix's picture

They are like a cargo cult of capitalism. They build primitive landing strips and pray the big metal birds of prosperity will come and save them.

Future Jim's picture

Wouldn't the fed have to actually buy something like US bonds or CDO's to print money? Can the fed do this covertly, because if not, there will be a huge backlash.

minus dog's picture

Ask the Irish.

At the end of the day, they can pretty much do whatever the hell they want.  People are not paying attention.

Rotwang's picture

You forget that they can't.

Complex societies break in all kinds of ways and are in constant need of sophisticated maintenance. Boots on the ground aren't any good.

SwingForce's picture

Abso-fuckin-lutely, if you have any idea what the word DEFLATION means.

Just look at this statement:

Interest rate of 29.99%, late fees after late fees, overlimit fees after last month's overlimit fees, my limit was $18,750 yet my balance was $24, 563 a whole 30% HIGHER! Was there any way I could pay this? That does not matter, what is going on here is Bank of America reports "They are still gaining revenue, I am paying all their charges, profits are great and bonuses are greater". 

Guess what, they should have taken the $18,750 loss in 2006, instead of pumping it up to $24, 563 in 2008 which I eventually paid $2400 to settle, yes 10 cents on the dollar. 

$16,350 went bye-bye, poof! That's DEFLATION when $$$ DISSAPPEAR, but if you listen to BAC they will say I made $22,100 disappear, diff of 40% that they claimed as income, and now have to claim as loss (5 years later, losses are greater, sing it!).

Graham, your question makes you appear to be an asshole, but maybe you are just working Z-H like the rest of them. Like gold is an answer, wake up and answer your own question. "YES, it is, moreso today than yesterday."

snowball777's picture

Put your head in the chipper.

Rotwang's picture

Yeah SF.

You probably just transferred 22k into the income side of an IRS account.

And they'll charge you.

SwingForce's picture

Yes they did, but the income was expenses, and Phoenix Rewrote the whole story, that asshole, after I called him out on the real meaning of DEFLATION.

Escapeclaws's picture

Ho hum, simplistic arguments that don't show insight. Read Steve Keen, if you are impatient with drivel.

Eternal Student's picture

+1. This strikes me as more of an advertisement than anything informative. Just a glorified opinion, with nothing else to back it up.

What is glaringly missing is the "small" fact that Bernake simply can't print up $640+ Trillion to offset a collapse in the known derivatives market, without serious consequences from the Bond Markets to the price of oil.

I do wish Tyler would raise the standards for articles. Or, if ZH is getting paid for this, to state that.

66Sexy's picture

Peter owes Paul 1,000,000,000 situation.

Eventually, if we get close to a SHTF, Peter can settle with paul for 5-10% of the debt and the beloved taxpayers can foot the bill! The tax liability for the forgiven debt? now, that is something i'd like to see behind the scenes. Im sure BAC , C et al got a pass on those stacks of forgiven losses...

Again, the taxpayer bends over, gets taxed up front, waits 3 weeks for his paycheck, and will soon be looking at 5$ per gallon gas. Oh yeah, like in vegas (which is now 71% underwater), will walk away from his underwater mortgage and instead of saving the money, go to the casino's and gamble it away. I look around, i see (counterintuitively) that the casino parking lots are FULL here... yet on Drudge today, vegas is indeed 71% underwater. The money is going to chase pipedreams, not assets.

Soon, the aptly described JSP schmuck will be priced out of ALL assets; gold ...and even silver, very soon.


AUD's picture

Why is it so hard for people to see that 'inflation', as in rising $ prices, is just 'deflation' of the credit of the central bank & thus the government?

You will never have inflation or deflation because they are the same thing. The money managers in high places laugh as the economic pundits chase shadows, seemingly without end.