Inflationary Targets Will Fail – World Stuck In Deflationary Super-Cycle

EconMatters's picture




 

True Wealth Pie Decreasing

Japan came out with their long awaited 2% inflation target,
and currency devaluation scheme, but it is doomed to fail. It will fail like
all these government and central planning currency devaluation schemes because
the one point that nobody gets right now is that the entire world is in the
middle of a twenty-five year Super-deflationary cycle because there is a
depreciating pile of total wealth in the world. In short everybody is broke!

Mature Governments all in Debt

Most governments are heavily in debt, they are ultimately
going to be forced to cut back spending through austerity programs. Most
governments are going to have to raise taxes for the next 25 years, taking more
money from both businesses and citizens. This all results in less disposable
income to purchase products, and much lower margins for all companies for the
next 25 years as competitive pressures fight over a smaller overall pie of
disposable income.

50 Years of Leveraging Cycle

Most analysts expect a Super Inflationary Cycle due to the
massive amount of currency devaluation and money printing schemes around the
world. But ultimately, the reason everyone is trying to devalue their
currencies is because everyone is broke, and the entire world has lived well
beyond its means for 50 years.

Simply devaluing the currencies is not going to change the
wealth pie in the world which is shrinking because it was built to such an
artificial level for 50 years, the contraction phase of not having anything
backing this inflated wealth will take 25 years of contracting to get back to
sustainable levels.

Contraction Pressures Stronger than Temporal
Artificial Currency Measures

Central banks can artificially try to create inflation, and
may even have slight upticks in inflation, but ultimately we will still be in a
contraction phase because the contraction pressures are greater than the
central banks can devalue the currencies over the long haul.

And you start to see the lessening effect of each round of
QE Infinity. It ought to be a tell-tale sign when central banks are conducting
all these loose monetary policies globally and this is all the inflation they
can create!

When the Fed stops their program at the end of the year
because they basically are running out of competent bullets, the contracting
will start all over again.

Japan will be contracting for another
20 years

The same thing will happen in Japan as well. They may get a
slight uptick in inflation for 6 to 12 months, but these artificial means in a
cyclical deflationary environment in the country means that the BOJ is simply
swimming against the tide, and eventually the swimmer tires, and the stronger
force prevails.

Japan simply is non-competitive, has poor demographics,
their time has passed, and they are broke. All these contractionary forces
ultimately prevail and the artificial measures simply cannot overcome poor
fundamentals for their economy, and the global economy at large.

Somebody has to Pay!

So at times it will seem that there are bouts of inflation
in the economy, but because the global economy is broke in overall wealth,
i.e., everybody needs more money, somebody has to pay and margins just come
down as what gives is the amount of “Actual/Real” money that consumers and
businesses have to procure goods in the overall global wealth economy.

The World Cannot Afford Inflation

Another way to say this is the world cannot afford
inflation, and governments can try to print their way to prosperity, and in the
process artificially raise prices, but consumers cannot afford higher prices,
the global economies contract, and this results in slower growth. And the
entire deflationary loop just continues down the contracting process of a 25
year Super Cycle that feeds into itself.  

All the mature economies are still trying to put off
deleveraging through various means, and the emerging economies haven`t even
started to deleverage yet? But the underlying fundamentals are such that
deleveraging is the only way that the economy can get back to the sustainable
levels needed for the economics of growth to match the underlying financial
wealth/health of the world. 

 

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Wed, 01/30/2013 - 15:51 | 3199896 widget
widget's picture

And where is this deflation showing up? Not in JPY that's for sure.

Tue, 01/22/2013 - 11:43 | 3175504 the grateful un...
the grateful unemployed's picture

the world cannot afford deflation. the shortest way to bring some normal skew to the curve is to RAISE interest rates. a few years ago Wayne Angell, then fed member, made the statement, but Bernanke doesn't get it (well the USG doesn't want to pay for it, and the Fed could raise interest rates, STIMULATE the economy, and add little inflation by simply RAISING Rates)

Tue, 01/22/2013 - 08:30 | 3175057 DavosSherman
DavosSherman's picture

F-

Tue, 01/22/2013 - 07:10 | 3175001 eddiebe
eddiebe's picture

Hmmmmm.

Tue, 01/22/2013 - 05:33 | 3174968 BeerGoggles
BeerGoggles's picture

DEFLATION?!

SELL GOLD BITCHEZZZZZZZ

Tue, 01/22/2013 - 09:37 | 3175132 DavosSherman
DavosSherman's picture

Yo Bitch, gold does great in a deflation, but we are going to have a global collapse of all Fiat currency, all at the same time, I suspect Japan will be the catalyst.

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