Guest Post: US Household Net Worth Plunges

Tyler Durden's picture

Submitted by Michael Suede of Fascist Soup

US Household Net Worth Plunges

Since the beginning of the greatest depression, US household net worth has plunged nearly 11 trillion dollars.  All the while we continue to experience price inflation and expanded government spending.

In a normal economy that isn’t run by a bunch of criminals, we should expect to see price deflation as malinvestment is wiped out.  Since our money is based on debt, as debt is reduced though defaults and write-downs, the monetary base should contract, thereby leading to price deflation.

Of course, this is not what we are actually experiencing at the present moment since the criminal central bankers and politicians have decided to prevent the liquidation of malinvestment through a nearly endless series of bailouts, guarantees, and deficit spending.

Contrary to what the criminal Keynesians would have you believe, price deflation is a good thing.  It does not lead to economic collapse.  In a normal non-criminal monetary system, deflation will sink the paper money stock back down to the “real” money stock, which is a 1 to 1 ratio of paper issuance to the gold stock (or at least closer to this point).

There is some debate about how far the money stock would sink to in our current system of fraud and theft, but I personally think it would shrink until everything that can be considered waste is liquidated from the economy.  At the most, it would shrink back down to the existing money stock we had prior to the abolition of the gold system back in the 1960s since this is the existing stock of money that is not based on debt  (I highly doubt it would shrink this far though.)  It should be noted that it takes very little fiat money to have a functioning economy since prices will adjust back down meet the amount of currency in circulation.  As money becomes more scarce, prices will fall until a market balance is achieved between the demand for money and its supply.  Once all the bad investments are liquidated, the economy will once again begin experiencing a normal demand for credit and lending can resume in a much more sane fashion.

In a non-criminal currency (ie. gold), inflation is caused by banks lending out more money than they have in gold reserves or by an increase in the gold stock.  Business cycles are directly related to this fraudulent activity of excessive lending since the act of lending more paper money than the banks actually have in gold reserves artificially reduces interest rates, which leads to “booms” in the cycle.

These “booms” are when the malinvestment takes place due to excessively “cheap” money (credit) being available.  Since money is cheap, investors are willing to take more risk than they otherwise would.  The cheap cost of borrowing also sends a signal to investors that there is more capital goods available for future production than actually exists.  Producers see the cheap rates and assume people have lots of savings available to spend on future consumption so industry reorganizes itself into the production of long term goods.  Only later is it revealed that consumers are broke and the existing capital stock of goods that producers were relying on to finish their projects does not actually exist.

The “bust” is the market trying to correct this excessive lending and return itself to a proper ratio of gold to dollars.  The “proper” ratio can be considered a point where all bad debts (malinvestments) have been cleared through defaults and write-downs.

In a totally unregulated system of gold back currency, the normal behavior of the economy is to experience constant DEFLATION.  As the economy grows and becomes more productive, the value of the currency will INCREASE over time.  A piece of gold will buy more and more goods as productivity increases.  We should see constantly DECREASING prices, just as we see in the consumer electronics industry, due to technological innovation, competition, and increased efficiency.

The fact that we have not seen price deflation as household net worth has plumeted by nearly eleven trillion speaks volumes about the amount of fraud being conducted by the banks and criminal politicians.  A reduction in a nominal net worth of 11 trillion dollars is only a big deal if it is NOT accompanied by deflation.  Since we don’t have deflation – it’s a big deal.

Eventually, the market WILL win this fight.  It is only a matter of time.  The central bank and government will either wipe out the currency through the printing press, or they will allow the necessary deflation to occur and the debts to be cleared.  If they wipe out the currency through the printing press, people will once again be forced to return to real money – gold.