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Guest Post: The Case Against Deflation

Tyler Durden's picture


Submitted by Aladair Macleod via,

Regular readers will know I am in the inflation, possibly hyperinflation camp; but there are those that think the future is more likely to be deflationary. In the main this is the view of neoclassical economists, Keynesians and monetarists, who generally foresee a 1930s-style slump unless the economy is stimulated out of it.

Rather than repeatedly go into the errors of their ways, we must accept that they are in charge. They have decided that prices must not fall, and they see moderate price inflation as a necessary stimulant to business: this is the reasoning behind Helicopter Ben Bernanke’s defining statement, when he made it clear that central banks could spray the economy with endless fiat money if need be.

Given this determination to stop prices falling, worries that the outlook is deflationary are unlikely to be realised. But there is a second group of commentators which believes that in a slump there will be an unstoppable credit contraction as banks are forced to foreclose on failing businesses. This, they say, will lead to a mad dash for cash to pay off debt, leading to fire-sales of assets as credit contraction spreads to otherwise sound businesses. The imperative to pay down debt will overwhelm central banks’ attempts to replace it with cash.

The error here is to misunderstand where we are in this sorry tale. The belief common to all deflationists, that the developed world has so far avoided a severe economic contraction, is wrong. The fact that this is not often recognised must be blamed on the irrelevance of nearly all government statistics. Not only are they self-serving, but they do not allow for the increasing meaninglessness of government money. The only hard statistics are unemployment, which despite official attempts to water them down, cannot conceal the fact that there has been a slump since the banking crisis.

The banking crisis marked a sudden increase in consumer preferences in favour of money, assuredly egged on by banks who switched almost overnight from risk-tolerant to risk-averse. This is why GDP numbers in most major countries took such a heavy knock, reflecting money being withdrawn from economic activity. That was the event deflationists are worrying about today.

So deflationists are forecasting an event that happened five years ago and their fears have already been disproved by massive monetary intervention. That is not to say the slump is over: far from it. Current indications are that things are about to get worse everywhere. But the nightmare cycle of falling asset prices becoming self-feeding and a dash for cash has already been prevented.

So successful was the Fed leading other central banks to save the world in 2009 that the precedent is established: if things take a turn for the worse or a systemically important financial institution looks like failing, Superman Ben and his cohort of central bankers will save us all again.

Call it kryptonite, or failing animal spirits if you like. It is closer to the truth to understand we are witnessing the early stages of erosion of confidence in government and ultimately its paper money. Ordinary people are finally beginning to suspect this, signalled by the world-wide rush into precious metals last month.


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Mon, 05/06/2013 - 18:07 | 3535617 GubbermintWorker
GubbermintWorker's picture

Real assets bitchez!

Mon, 05/06/2013 - 18:17 | 3535648 Manthong
Manthong's picture

To the muppets, they are arbing a ~60” HD Led screen against an ounce of gold.

You get paper and/or a screen while they drag the gold.

The Fed, the ECB, the BoE, BoJ and the PBC are all in the same game.

What’s that paper or screen worth in a year or two?

Mon, 05/06/2013 - 18:31 | 3535694 The Watchman
The Watchman's picture

.....plug me back in...... I don't wanna remember nothin'......

Mon, 05/06/2013 - 18:41 | 3535700 Manthong
Manthong's picture

just the tasty steak  and glass of wine :-)

Mon, 05/06/2013 - 20:16 | 3535997 MiguelitoRaton
MiguelitoRaton's picture

Japan was also in the grip of Keynesians and they stimulated like crazy but they still got deflation over decades, what makes you think it will work here when personal and business credit is not expanding...can the gov really make up the difference?

Mon, 05/06/2013 - 23:20 | 3536547 Big Slick
Big Slick's picture

Another argument against deflation... unlike its opposite, the government cannot tax it.

Tue, 05/07/2013 - 07:31 | 3536923 sessinpo
sessinpo's picture

That might be an argument for deflation.


In other words, the government is fighting deflation (like Japan), expecting it can overpower market forces. Of course it can temporarily, but can it in the end?

Another way to put it is this. The government is usually wrong. So if they make you think inflation is the problem, then.....

Mon, 05/06/2013 - 18:08 | 3535621 Doubleguns
Doubleguns's picture

Ummm not enough folks rushed into precious metals to change the out come for the fiat. We need MOAR to rush in!!!

Mon, 05/06/2013 - 18:18 | 3535653 Stoploss
Stoploss's picture


It has been proven beyond a shadow of a doubt that deflation is the most powerful financial force, period.

If it were not, it would only take 'about fifteen minutes' to correct..

Mon, 05/06/2013 - 18:39 | 3535726 Aghast in Midlothian
Aghast in Midlothian's picture

Can fix it tomorrow, if wanted. Simply give $1,000,000 to each US citizen. The spending would begin....assets would inflate...and the hell hound of inflation would begin to bay. 

Mon, 05/06/2013 - 20:21 | 3536023 Stoploss
Stoploss's picture

A less volatile method would have been for the FED to assume all private sector debt instead of monetizing, but we tried to make that clear about five years ago. Too late now.


Mon, 05/06/2013 - 18:08 | 3535622 Kirk2NCC1701
Kirk2NCC1701's picture

If they Deflate, the fiat-price of Gold goes down. What about bullion prices? 

As long as the marginal production costs stay high, the street price of bullion will be dominated by the marginal production costs + bullion supplies.  No matter what the paper-price is.  Moral:  If you chose to own gold, it better be bullion.

Mon, 05/06/2013 - 18:11 | 3535634 THX 1178
THX 1178's picture

If they deflate the stock market deflates. If the stock market deflates its either print or die. If print then US bonds become unappealing investments. Flight from bonds? Fed creates money from nothing to buy dumped bonds on Open Market? 

I think it will be deflation then hyperinflation as central banks around the world led by the fed print to save us from another nightmare... only to create a worse one.

Tue, 05/07/2013 - 12:09 | 3537762 A is A
A is A's picture

Yep, very possible. One last deflationary cycle to send our deficits to 2 trillion. This will send us printing to the sky. Then the FX vigilante will will do what the now extinct bond vigilante should have done a long time ago but couldn't because the FED owns the bond market. Finally, bye bye $.

Mon, 05/06/2013 - 18:10 | 3535631 kito
kito's picture

In the main this is the view of neoclassical economists, Keynesians and monetarists, who generally foresee a 1930s-style slump unless the economy is stimulated out of it..........


bullshit.....there are many in the deflation camp who think there isnt a fargin thing the government can do about it at this point.................

Mon, 05/06/2013 - 18:16 | 3535647 malek
malek's picture

You mean because the printing rate will be limited by light speed?

Mon, 05/06/2013 - 18:26 | 3535678 Goldilocks
Goldilocks's picture

Eagles - Take It To The Limit (4:48)

Mon, 05/06/2013 - 20:18 | 3536009 Kirk2NCC1701
Kirk2NCC1701's picture

That would be consistent with Einstein's Special Relativity: 

As speed approaches c (light speed), mass approaches infinity.  In other words, the faster you print, the more paper (mass) you got.

Who'd have known that Einstein knew this already in 1907?  6 years before the Fed was created!

Mon, 05/06/2013 - 18:32 | 3535687 fonzannoon
fonzannoon's picture

Well if there was not a thing the government could do about it at this point then how can we explain the market being where it is at this point?

That being said I am in the camp of when it finally does burst, whatever the cause...there won't be a damn thing the government can do about it. What happens when we get to that point is the only question left.

 Kito I think they have a plan for cash by the way and it involves the new hundred dollar bill. I am sure you have read this. Any thoughts?

Mon, 05/06/2013 - 18:38 | 3535718 SAT 800
SAT 800's picture

The stock market is supported by a constant flow of buy orders that come in every month from 401K plans which are operating as mutual funds; they are "index funds"; they buy the S&P500; for instance. This very clever and diabolical mechanism has been in place for some time now. Consider, for instance, the chronically high paid government employees; they almost all, to a man, have 40lK's; and ninety percent of them are probably in index funds. I regard this clever plan of offering the public the IRA and the 401K; in the expectation that the mass media can drive 80%+ of the funds into the market as the greatest financial crime of all history.

Mon, 05/06/2013 - 18:41 | 3535729 fonzannoon
fonzannoon's picture

I don't have any idea how and why what you just said always seems to get forgotten everytime we talk about how "retail is not in this market"

They are shoved into this market every two weeks. Stocks and bonds.


Mon, 05/06/2013 - 19:58 | 3535918 W T F II
W T F II's picture

This was not occurring until now..? I guess the wires must have been crossed from Apr-June 2012 or Sept-mid Nov 2012 or from Aug-Nov 2011 of from May-end June 2010....??

Since current volumes are historically low, I guess there just aren't as many checks being processed...??

Tue, 05/07/2013 - 08:13 | 3537012 drdolittle
drdolittle's picture

In a nutshell why you can't keep money in "the market".

We're all gonna get rich buying the market, then we'll all retire by selling the market to the next guy!
Mon, 05/06/2013 - 20:33 | 3536071 kito
kito's picture talking about the inevitable collapse................

Mon, 05/06/2013 - 19:06 | 3535810 W T F II
W T F II's picture

AND....the "deflation camp" has a great campfire courtesy of collapsing lumber prices in the "Housing Boom Economy" we've artfully engineered for ourselves.

Mon, 05/06/2013 - 21:44 | 3536320 W T F II
W T F II's picture


At least we know what he is seeing NOW. From the speech:

"The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand--a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers.1 Likewise, the economic effects of a deflationary episode, for the most part, are similar to those of any other sharp decline in aggregate spending--namely, recession, rising unemployment, and financial stress."

Good post...

Mon, 05/06/2013 - 18:12 | 3535637 apberusdisvet
apberusdisvet's picture

gold rises in both inflationary and deflationary periods; in times of crises like the current one with the sky dark from 100s of black swans looking for a place to land, gold will be the ultimate wealth preservation hedge.

Mon, 05/06/2013 - 18:44 | 3535723 SAT 800
SAT 800's picture

Let's not forget Silver, now! It has earned its stripes and it's credibility throughout history. Other than that note; I agree wholeheartedly with your post. Do you or anyone have one paper dollar that has preserved the purchasing power it had at any relatively recent period? Such as the election of the Obamanation, for instance. Since that disgraceful slap in the face for intelligence, both the price of gasolene and hot dogs has doubled. I'm entirely out of patientce with these conventional financial planners and pundits with their various plans to gain more "dollars" in their portfolios"; it will not serve. The deal is going down.

Mon, 05/06/2013 - 20:20 | 3536021 Kirk2NCC1701
Kirk2NCC1701's picture

Say what?  We all get how gold protects you during Inflation, but please explain how gold protects you during Deflation.

Tue, 05/07/2013 - 07:37 | 3536930 sessinpo
sessinpo's picture

This isn't true. During the the deflationary collapse of the 1930's, gold spot prices went down.


I beleive gold mining stocks went up but most commodity spot prices went down.

Tue, 05/07/2013 - 08:14 | 3537018 drdolittle
drdolittle's picture

Down from 20 to 35$ right?


Mon, 05/06/2013 - 18:17 | 3535643 booboo
booboo's picture

Trillions to to keep a balloon with two holes in it inflated, there must be air seeping out somewhere. Ben needs a bigger set of lips, Bartiromo sized lips.

Mon, 05/06/2013 - 18:32 | 3535695 prains
prains's picture

and it's not a balloon

Mon, 05/06/2013 - 18:15 | 3535644 grid-b-gone
grid-b-gone's picture

  "we are witnessing the early stages of erosion of confidence in government and ultimately its paper money"

This is the point most don't consider. Every $85 billion month of market-propping printing erodes the value of every other dollar already in the system when there is not core growth in the economy to justify the printing. 

Throughout history, no political entity has been able to lay off the printing once it becomes such a central and integral part of the public sector in relation to the private sector.

Bernanke might think he will be the first, but history is batting 1,000.

Mon, 05/06/2013 - 18:26 | 3535679 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

It is not going to be Bubble Ben but his succesor that is going to try and taper off QE. You watch and see.

Mon, 05/06/2013 - 18:32 | 3535698 Antifederalist
Antifederalist's picture

Taper, my ass. They will print until our eyes bleed. And it will seem normal. Until it doesn't.

Mon, 05/06/2013 - 18:38 | 3535719 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

The FED can't survive without the government, the government can survive without the FED if they truely wanted to. When QE endangers their survival which is real close, it will be tapered off.

Mon, 05/06/2013 - 21:01 | 3536178 KickIce
KickIce's picture

Actually. when you consider the amount of money printed, aren't we already experiencing deflation?

Mon, 05/06/2013 - 22:33 | 3536445 Xploregon
Xploregon's picture


Wait a sec! -"The FED can't survive without the government, the government can survive without the FED if they truely wanted to. When QE endangers their survival which is real close, it will be tapered off."


So .gov will get deseprate and "if it wanted to", it could survive without the FED?


WHAT???  Are we talking the US Goverment? ROFLMAO.

Mon, 05/06/2013 - 18:33 | 3535699 SheepDog-One
SheepDog-One's picture

There's never going to be any 'tapering off' morning it will all just be shut down and everyones money gone, MF Global style. There's NO way out of this, the only endgame to this insanity is complete destruction of the entire aparatus, YOU watch and see!

Mon, 05/06/2013 - 18:39 | 3535725 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

You maybe right but I think we can all agree this shit show don't end well no matter how it ultimately goes down.

Mon, 05/06/2013 - 19:27 | 3535856 francis_sawyer
francis_sawyer's picture

& the day that it all goes POOF in an instant... & people are standing around wondering what the hell just happened... They're going to look for a scapegoat... & that scapegoat is going to have a face & a reputation for 'money changing'...

They're NOT going to take out their aggressions on a faceless limestone building with marble columns... You watch & see...

Mon, 05/06/2013 - 20:11 | 3535932 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

You are damn skippy, it is going to be wabbit hunting season when that happens. It is not just going to be the money changers that are on the hunting list once that happens, you can add politicians to that list. The government with it's FRN bonds it is issuing early next year (which coincidentally or not coincides with the end of Bernanke's term) should keep the government from defaulting in the short term doing some refinancing of existing bonds to keep the aggregate interest rate on t-bills low enough to not explode government debt. Contraction is coming, all the individual pieces says they are preparing for contraction probably as early as around the beginning of next year. (more likely with no unforeseen black swan events after midterm elections in 2014 assuming people throw out the status quo). Everything now is just extend and pretend until they have 'control' mechanisms in place to obfiscate the rate of contraction.

Mon, 05/06/2013 - 20:54 | 3536152 Herd Redirectio...
Herd Redirection Committee's picture

or people will take the scapegoat thats given to them.  'Government ineptitude' and 'Ignorance by the masses' and a dash of 'it was your own fault', and you never know how these things will be defused, misdirected, blow up, etc.

My wish is that people, at least 10% of the pop., become educated before we reach that point. 

I think the avg. person needs, for e.g., a deck of cards to guide them.

Mon, 05/06/2013 - 22:19 | 3536412 Herodotus
Herodotus's picture

If the money changers are lucky, they will be expelled in a manner similar to what took place in England in 1290.  Or with bad luck it could turn out to be a lot worse.  In any event, if I were a money changer, I would keep a packed suitcase next to my back door.

Mon, 05/06/2013 - 21:05 | 3536194 KickIce
KickIce's picture

The end game is a shift from debt tyranny to full blown tyranny. You will only be premitted to work, rent housing or buy things if you play their game.

Tue, 05/07/2013 - 00:01 | 3536604 Vooter
Vooter's picture

"You will only be premitted to work, rent housing or buy things if you play their game."

I bet we could still wreck housing and things if we felt like it...

Mon, 05/06/2013 - 19:07 | 3535812 W T F II
W T F II's picture

They'll just switch to "EQ"...

Mon, 05/06/2013 - 18:25 | 3535680 SheepDog-One
SheepDog-One's picture

'EARLY stages of erosion in confidence in gubmint and it's phony paper slave money?'

Holy fuck if this is the early stages, there's no fuckin way I want to ride out 'middle' and 'late' stages....when will that be around 2350 A.D.?

Fuck all this I may as well go live in a tent this world is fucking bullshit.

Mon, 05/06/2013 - 18:32 | 3535697 SAT 800
SAT 800's picture

No one knows. it might be Christmas 2013; or the Fall of 2015. But not 2350AD.

Mon, 05/06/2013 - 18:46 | 3535750 booboo
booboo's picture

pretty sure it happens between now and when the Documentary Idiocracy was filmed, what was that 2437 or sumfin?

Mon, 05/06/2013 - 18:33 | 3535702 fonzannoon
fonzannoon's picture

Why live in a tent when you can get one of those scooter store scooters for free if you get fat enough and just ride around the mall all day?

Mon, 05/06/2013 - 18:54 | 3535784 Hulk
Hulk's picture

Tipi's are the way to go...

Mon, 05/06/2013 - 23:23 | 3536554 RaceToTheBottom
RaceToTheBottom's picture

Those things come with wheels?

Mon, 05/06/2013 - 23:22 | 3536551 HardAssets
HardAssets's picture

Tents are cool. So is sleeping out under the stars up in the mountains. Heck, might even get to do full time what we work all year now to do on vacation.

Mon, 05/06/2013 - 18:30 | 3535690 SAT 800
SAT 800's picture

Yes. The Euro may provide the necessary salutary lesson for the great dum-dums; who get all their opinions from the boob tube. Also, let's not overlook Silver; which is also a monetary metal with a a wonderful historical pedigree.

Mon, 05/06/2013 - 18:40 | 3535728 sschu
sschu's picture

Throughout history, no political entity has been able to lay off the printing once it becomes such a central and integral part of the public sector in relation to the private sector.

Yes, this last election was about this very topic.  Whether you believe or not that Romney was actually going to do anything about our fiscal situation, it was apparent that compared to the Bamster, he was Attila the Hun on this issue.  

The pain associated with balancing government revenues and outlays and the intoxicating power that comes from being able to hand out free money to your friends makes the idea of “austerity” a non-starter in today’s political environment.  Who in the future will run on the idea of smaller and saner government? 

The die has been cast, history is our guide, and Satan will have his day.  Inflation is the monster that is out of the bottle and just waiting to devour the common man.  

Swinging from a lamp post is too good for these guys. 


Mon, 05/06/2013 - 18:46 | 3535749 SAT 800
SAT 800's picture

I believe Romney was our last chance. Now the people will reap what they have sown.

Mon, 05/06/2013 - 18:55 | 3535785 kaiserhoff
kaiserhoff's picture

The Commies thought the same thing.

That's why there was massive vote fraud in Florida, Pennsylvania, and Ohio.


Mon, 05/06/2013 - 18:24 | 3535655 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Unless people have money to spend outside of paying expenses, if they are deleveraging you won't get inflation since people won't spend simple as that. Deflation is a natural consequence of the economic landscape we currently face, add in increased taxation and obamacare to eat away even more discretionary income, deflation is more likely. Only one sure way to create inflation which is price controls. That they can do with for example food by ending subsidies for things like milk but food is not counted in the CPI.


Look at this way I am joe-six pack, I have no money, I can't get a loan because I have no job, the only option I have is credit either through a government subsidy or credit card company. Who is backstopping both them with liquidity, the FED. As long as the economy can't create real private wealth the minute you cut this chain the whole thing crashes and deflation happens next. Without a healthy economy there will be no inflation unless it is rigged inflation or bubble based through subsidies and/or price controls. They can also force inflation by the paper markets rigging commodity prices on key raw materials (sounds familiar....).

Mon, 05/06/2013 - 20:40 | 3536094 Professorlocknload
Professorlocknload's picture

Way I read this is, Keynes didn't crawl out from under a rock until well after the last deflationary event was in motion. This time 'round, he is firmly implanted in every institution world wide. Hell, he's a religion!



Deflation? Does this mean the incumbent pols will just concede the 2014 Congressional elections?


And as for price controls, aren't those usually a symptom of inflation, not the cause?

Also, at the rate Hud Ghettos are being permitted, all Section 8, won't that free up a whole lot of cash, as well as inject cash into the system through the construction industry? As well as generate fresh Fed cash into every community? Sec 8 pays 2/3rds of those rents.

October. The month the new c-notes are released by the rail car load. 1 year before election time. All the planets converge then. The heavy artillery comes out. It will astound!  

QE Double Ought Magnum. Stay Thirsty, my Friends! Drinks on Ben.


Mon, 05/06/2013 - 21:05 | 3536195 Herd Redirectio...
Herd Redirection Committee's picture

Inflation can happen in America almost completely in spite of the avg US consumer.  Why?  Two reasons.  The government as a consumer.  The government gives subsidies to people and corporations by the billions.  Subsidies, buying influence, call it what you will.  But it means the gov is involved in real estate, security/defense/empire building, education, finance, auto industry, food, etc. etc. etc.  

The military consumes 'a little' oil, and that has to be paid for by Benny's Funny Bux as well.

So that means their spending will affect a 'broad basket' of goods, very similar to an avg. consumer (with some level of bias, of course, aka cronyism).  The next point is, the USD is currently (barely) the world reserve currency.  Those USD are looking for a home.  By definition, if the USD loses reserve currency status those USD have to be spent.

Mon, 05/06/2013 - 23:57 | 3536599 Vooter
Vooter's picture

"By definition, if the USD loses reserve currency status those USD have to be spent."

Or just burned for heat...

Tue, 05/07/2013 - 03:57 | 3536768 Herd Redirectio...
Herd Redirection Committee's picture

You are right, I haven't accounted for that.  I am pretty sure someone calculated the point at which dollar bills are more efficient to burn than to spend.  I think its still 2 zeroes away  :)

Mon, 05/06/2013 - 18:19 | 3535656 Kirk2NCC1701
Kirk2NCC1701's picture

I am now troubled that the Chinese are playing hanky-paulson-panky with the IRS, because they are making it very difficult for non-residents to have Chinese accounts in places like Hong Kong.  The weasel-word of "money laundering" is being bantered about everywhere, as a pretext for new rules.

Strongly suspect that the Russians and Chinese are not nearly as sophisticated as the aristocratic NWO crowd, insofar they don't realize that these increasing capital controls are far, far more about their advertised purpose, than about Total Global Control of all, via an IMF-sponsored SDR.

For all we know, the US, EU, Russia and China may have already carved up the world into regional zones of total control, and have plans for a common currency.  As world maps get redrawn along economic lines, there will be some turbulent times ahead.

Mon, 05/06/2013 - 21:10 | 3536214 Herd Redirectio...
Herd Redirection Committee's picture

We have a common currency, that has been forced on the entire world the last 40 odd years, called the USD.

But I don't doubt they want to carve the world up (again).  The narrative the elite are telling us is one of a multi-polar world, never mind the bit about America being destroyed from within, AND financing the build-up of its future 'enemies'.  Straight out of 1984.

Mon, 05/06/2013 - 18:20 | 3535663 Dingleberry
Dingleberry's picture

Inflation= poor get poorer (they can't keep pace) and rich (who own inflating assets) get richer.

Deflation=poor get poorer (due to toilet-like drain of lower earnings=layoffs, foreclosures) and the rich get poorer (due to deflating assets and accompanying leverage).

Which do you think the Fed prefers?

Either way, you unwashed masses are fucked.


Mon, 05/06/2013 - 18:23 | 3535673 devo
devo's picture

Exactly, all you need to know is that inflation benefits the wealthy. This could have been a one sentence article.

Mon, 05/06/2013 - 18:29 | 3535684 SheepDog-One
SheepDog-One's picture

And the thing is, this is nothing new...we've been going over this here years ago!

Mon, 05/06/2013 - 18:44 | 3535742 devo
devo's picture

Oh, I'm sure.

Wish I had more resources when the path became obvious. I'm late to the 'game', but I think there are millions who will be later. People are freaking clueless still.

Mon, 05/06/2013 - 21:16 | 3536242 Herd Redirectio...
Herd Redirection Committee's picture

The best way I've been able to explain it is, the Super Wealthy ($1b +) don't need inflation.  They don't need hyper-inflation.  Their net equity is tremendous, probably trillions combined.   But... Their power base, for the most part, are the top 1%-5%, who they enrich by... Well, just look at Al Gore.

You are given TIMELY insider information, sweetheart deals, provided with tremendous leverage/financing... 

But this engine of the elite (they do a lot of the work of their elite paymasters, after all) needs leverage to function properly.  To give the subordinates that rush of having been gifted instantaneous wealth.

And this process really only works well in times of rising asset prices.

Tue, 05/07/2013 - 06:37 | 3536855 Optimusprime
Optimusprime's picture

+1.  Excellent.  We must never underestimate the "political" aspect of "political economy". 

Mon, 05/06/2013 - 20:34 | 3536074 Kirk2NCC1701
Kirk2NCC1701's picture

During Inflation cash loses value and inflation benefits people holding real assets (land, gold), if they can keep them.  Cash sucks.

Deflation helps people with cash.  Cause you buy everything for less cash.  Even gold and the expensive house you bought is worth far less.  Cash is king.

This might explain why the truly rich -- and those who remained rich for centuries -- own both real assets and cash.

p.s. If you must debate, that's great.  But plz do so in a civil manner. 

Mon, 05/06/2013 - 20:52 | 3536139 Professorlocknload
Professorlocknload's picture

Yessir. Real Estate, Collectables and Precious Metals.

The stuff of Great Estates.


Mon, 05/06/2013 - 18:21 | 3535665 cheetahbaby
cheetahbaby's picture

When does one pull the trigger and buy land with gold??? CB

Mon, 05/06/2013 - 18:37 | 3535716 Muscletonian
Muscletonian's picture

That is the million dollar question, my guess is roughly five years and you will get plenty land per kg AU.. If you hold plenty AU you will be buying blocks of RE...

Mon, 05/06/2013 - 19:34 | 3535878 Tango in the Blight
Tango in the Blight's picture

Another sign of dollar inflation. It used to be the 64,000 dollar question. And that used to be a lot of money.


Mon, 05/06/2013 - 20:56 | 3536161 Professorlocknload
Professorlocknload's picture

Might want to look at Au/Ag as parallel holdings to RE. They could help pay P tax and overhead in hard times ;-)


Mon, 05/06/2013 - 20:17 | 3536005 Peachfuzz
Peachfuzz's picture

Well, all things being manipulated equally, when other countries get tired of USD reserve status, bond market crashes and either interest rate spikes or the dollar collapses under the weight of the printing press. One last one would be the collapse of the fractional reserve gold system causing failure to delivers and a sharp crack upward in gold.

I know I see housing bubble 2.0 where I'm at. It's a total farce, there's no jobs to support R.E. in these price ranges. My location when housing bubble 1.0 popped saw a 65-75 percent drop in home value. Shadow banking system collapsed, took the whole community with it. Everything was bid all the way down because banks weren't lending and only folks like yourself had the means to buy.

Good luck

Mon, 05/06/2013 - 20:38 | 3536085 Kirk2NCC1701
Kirk2NCC1701's picture

The smart-ass answer is:  When land is worth a lot less (lost more fiat value) than gold.  This generally happens when... "there's blood in the streets"*, as one asset is easier to hide than the other in times of physical desperation.

* Famous quote from a Rothschild, as to "the best time to buy".

Mon, 05/06/2013 - 18:27 | 3535670 SheepDog-One
SheepDog-One's picture

So there's never going to be any more 'deflation', no 'inflation' at all either ever again, so we'll just forevermore ride up the stawk indexes due to Central Banker criminals who have to print moar fake money to monetize more debt because theres no other way they can survive? Gee maybe I can just call a hit on myself and be done with this bullshit instead of slowly being consumed alive by creeping insanity?

Mon, 05/06/2013 - 18:29 | 3535682 akak
akak's picture

The case against deflation is simple common sense and a rudimentary knowledge of monetary and economic history.  It never ceases to amaze me how so many, if not all, of the flat-earth deflationists refuse to point  to ANY example in monetary and financial history which bolsters their laughable arguments of a fiat currency RISING in value in the face of exponentially-increasing governmental debt (or ANY fiat currency rising in value, period).

Oh wait, that's right, because they CAN'T, as there are no such examples in the historical record.

But this time is different!


Mon, 05/06/2013 - 18:30 | 3535689 SheepDog-One
SheepDog-One's picture

What really irks the shit out of me is this 'HE wants this...HE wants that' way should ONE person weild the hammer over an entire countries goings on, this is utter insanity!

Mon, 05/06/2013 - 18:34 | 3535706 prains
prains's picture

bread and circuses, that's all this is......


for now

Mon, 05/06/2013 - 21:50 | 3536339 bluskyes
bluskyes's picture

Until the bread runs out. That is the day that every regime dreads, because it's the tipping point, where the general public grows balls, and chooses a side, and is very unpredictable and hard to control.

Then the SHTF

Revolutions aren't fought on full bellies

Tue, 05/07/2013 - 21:19 | 3539465 Tompooz
Tompooz's picture

"Then the SHTF

Revolutions aren't fought on full bellies"

The S hitting the F is not the same as a Revolution.  SHTF in the West will simply usher in martial law and an enduring totalitarian police and surveillance state.

I lived through a real Revolution. (the Iranian one)

For a revolution to topple a regime, it needs a lot of well-planned elements of coup-d'etat. And it needs the support of most of the middle class. Then, of course, it never brings all the blue sky that it promises. Quite the contrary.

Careful what you wish for!

Mon, 05/06/2013 - 18:34 | 3535707 Antifederalist
Antifederalist's picture

Bingo. The pinnacle of arrogance. Bernanke will live to regret his false expertise.

Mon, 05/06/2013 - 18:53 | 3535776 Seasmoke
Seasmoke's picture

Bernanke will NOT live to regret his failed experience.

Mon, 05/06/2013 - 19:09 | 3535818 Antifederalist
Antifederalist's picture

Interesting, elaborate .

Mon, 05/06/2013 - 20:23 | 3536033 Jendrzejczyk
Jendrzejczyk's picture

Don't elaborate. That unexpected knock is unnerving.

Mon, 05/06/2013 - 20:43 | 3536105 Jendrzejczyk
Jendrzejczyk's picture

As an aside:

You apparently give up your right to privacy when you dial 911 and report a problem here in Maryland.

While driving recently, I saw a propane tank partially hidden in a box in the middle of the road. First inclination was to pull over and move it myself, but after the Boston insanity, I thought "Let someone else handle this just in case".

So I dialed 911, told them the situation and said the tank was probably empty and just fell out of the back of a truck or something, but better safe than sorry.

While pulled over and waiting for the cops to respond, my cell phone was "pinged". It made a strange, single beep never heard before. While it is common knowledge that the authorities can track your cell phone, it is unnerving to have them actually pinpoint you within seconds.


Mon, 05/06/2013 - 20:14 | 3535989 negative rates
negative rates's picture

One man and courage, makes a majority.

Mon, 05/06/2013 - 18:53 | 3535778 Rustysilver
Rustysilver's picture

There will never be deflation or inflation. Period. CPI is being modified to only measure the cost of Unicorns.

Mon, 05/06/2013 - 18:54 | 3535780 Diamond Jim
Diamond Jim's picture

all well and good...but I just came across an article stating that the People's Republic of Connecticut has just passed a law that  (Activist will require all PM sales (and precious stones) to be notated and the dealers will have to file a report / statement to the State of Conn all transactions with price and description of items sold. If true.....your bit coin will not be far behind. registration of guns, gold, diamonds, plus what ever else the Big Brother wants to track...privacy be damned...where does it end ????

Mon, 05/06/2013 - 20:12 | 3535974 klockwerks
klockwerks's picture

D Jim, read that about a week ago. Did it pass with the governor signature?

Mon, 05/06/2013 - 19:12 | 3535826 Tango in the Blight
Tango in the Blight's picture

Obama WILL go down into history as the Great Savior of the World Economy.

No matter how much he fucks up and spends double as much time on golf courses than in economy meetings.

He is black. A black man can't be seen as a failure in the public eye and must be shown as an example of "Black Acheivement".

He will rank alongside Roosevelt as the Greatest Crisis Manager of his era.

We all know how Roosevelt prolonged the Great Depression but still to the average citizen today he ranks as one of the greatest presidents ever.

Mon, 05/06/2013 - 19:14 | 3535828 AynRandFan
AynRandFan's picture

All the evidence points to continued deflation, and all the speculation points to rampant inflation.  I have no idea who will be correct ultimately, but Japan is a good example of the deflationary case.  At least Japan has a positive net export economy, which gains something from debasing the currency, while we do not.

I have puzzled over the persistence of deflationary effects in the midst of QE4ever on both sides of the Pacific Ocean.  My best theory is that people tend to hoard for fear of losing their income.  It is income, after all, that is the root problem in a falling economy.  Cash is great until it runs out.

Maybe the Fed will just continue ramping up its purchases of Treasuries and other worthless paper debt until we all throw in the towel.  So far, it looks that way.  Already, we have folks talking like the stock market is on an unstoppable stairway to heaven.

Mon, 05/06/2013 - 19:23 | 3535844 Clint Liquor
Clint Liquor's picture

Japan has only succeeded in delaying the bottom of their cycle to coincided with the cycle bottoms of Europe and the USA. In retrospect, it was incredibly stupid. They would be in their growth cycle right now, as the USA and Europe are hitting bottom.

But one can always count on Central Planners to be stupid and arrogant. A deadly combination.

Mon, 05/06/2013 - 19:33 | 3535874 Hubbs
Hubbs's picture

Steady income...that is the key.  I don't want to owe anything because I am afraid if I lose my job I can't pay it off. On the other hand, since the markets are rigged, and inflation could erupt out of nowhere, I don't, can't, WON'T invest for the future. I'd be pissing my money away. Pay as you go, but try to be able to keep paying and keep going.

Mon, 05/06/2013 - 19:24 | 3535846 AynRandFan
AynRandFan's picture

Tough to find examples of inflation right now.  Gasoline usage is falling off, industrial metals are down, and even lithium for those fancy Obamacars is in the tank (so to speak).  Food prices are up, but I wonder how much of that is due to the insane ethanol mandate.

I get how the money is being devalued by inventing $1 trillion a year, but it all seems to be ending up on paper asset markets in the hands of businesses and banks that have nowhere to invest for productive purposes.

So, okay, there is inflation in paper assets, but I don't see it spreading further into the economy.

Mon, 05/06/2013 - 19:28 | 3535857 Hubbs
Hubbs's picture

The Banks are hoarding cash so that the when the deflation monster hits the rest of the masses and things have to be sold at firesale prices, the Banks can gobble them up. Gobble, gobble , gobble, I tell you.

Mon, 05/06/2013 - 20:30 | 3536054 buyingsterling
buyingsterling's picture

Can someone explain why we always see this argument that the $1 trillion+ created each year is staying in the banking system, and not producing inflation? If it were merely bank bailouts I could see it, but it seems like this money is all ending up in treasuries - i.e., the government is spending it into the real economy. Isn't the quid-pro-quo with the banks that when their MBSs are laundered they will use the proceeds to buy treasuries? If so, how is the $1 trillion+ kept out of the real economy?

Mon, 05/06/2013 - 21:39 | 3536309 bluskyes
bluskyes's picture

Isn't a lot of that cash just directly lent back to the FED?

Mon, 05/06/2013 - 19:25 | 3535849 Hubbs
Hubbs's picture

Speaking of screens, with the price of solar panels dropping to $1 or 2 per watt, why not invest in a pallet or two of solar panels now, and in a few years when you are too broke to pay your utility bill, set them up. And for the more exotic shoppers, stock up on TP and dental floss.

Mon, 05/06/2013 - 21:02 | 3536184 Freebird
Freebird's picture

good idea..Leo has a 30 year roll out plan

Mon, 05/06/2013 - 19:50 | 3535907 Pareto
Pareto's picture

Inflation/deflation.  They used to say an ounce of gold is worth the best suit money can buy, the best shoes and cuff links to go with it, and the best steak in town (And I know a ZH'er will add the best hooker too).  And I figure that exchange value still holds true today.  Price deflation inevitable, I think, followed by massive price inflation as bonds get dumped and those dollars come home to roost.  Either way PMs will be the goto store of wealth, in my opinion. 

Mon, 05/06/2013 - 21:15 | 3536233 hairball48
hairball48's picture

There is no real savings and therefore no real investment for the future. We are consuming real resources and replacing them with paper. This story will end badly, very badly.

Mon, 05/06/2013 - 22:10 | 3536386 lasvegaspersona
lasvegaspersona's picture

Consider that the collapse may already be underway.

As we write here the inventories of the major public gold holders are being depleted. GLD is down from 1352 tons in January to 1062 tons today.

Tomorrow could be the rest gone if panic amongst the remaining large holders sets in.

If the paper gold market fails (due to lack of supply as opposed to all the common folk running out to buy it) the dollar will follow closely behind.

We may get our one single day gold is $1469/oz the next day you can't buy any...the next day gold is a gabillion per ounce because the dollar ain't worth squat. Shortly thereafter we may see those new bright orange(goldish) 100 dollar bills paraded out as a new currency....with a new, significantly higher gold these new dollars.

just thinkin...

Mon, 05/06/2013 - 22:22 | 3536416 americanspirit
americanspirit's picture

"... we are witnessing the early stages of erosion of confidence in government and ultimately its paper money."

Epic wrong. We are in the very late stages of total loss of confidence. Don't think that the so-called 'sheeple' are all that stupid. As I go about my business every day I make it a point to say things to people that test whether or not they are aware of what is going on. Trust me - they know. Its just that they don't have a clue what they can possibly do about it ( nor do I). So all that's left is the "I'm madder than hell and I'm not going to take it anymore" moment x 300,000,000. That is late-stage loss of confidence, not early stage of erosion.

Mon, 05/06/2013 - 23:40 | 3536573 blindman
blindman's picture

Antal Fekete: Gold Backwardation and the Collapse of the Tacoma Bridge
With Anthony Wile
"..Daily Bell: Where is the price of gold headed from here?

Antal Fekete: The price of gold is headed for extinction. I for one don't believe that the price of gold is headed for five digits. Long before that might happen, permanent backwardation* would shut down the gold futures markets. Gold could no longer be purchased at any price. Gold would only be available through barter. World trade is facing an avalanche-like transformation flattening out monetary economy into barter economy. Practically all economists, financial writers and market analysts have missed this possible scenario. They don't see the greatest economic contraction ever staring them in the face. They don't see the coming tsunami of unemployment. Very few see deflation as indicated by the progressive disappearance of cash gold. It never occurred to Bernanke that the new Federal Reserve notes he is printing galore could also go to purchase physical gold, causing the gold basis to shrink. Once the gold basis* goes permanently negative, the total U.S. debt, all $16 trillion of it, will not be worth one ounce of gold. That will pull the rug from underneath the international monetary system. Barter is the ultimate in deflation, and that is what the world economy is getting.

Tue, 05/07/2013 - 00:08 | 3536611 jimmyjames
jimmyjames's picture

But the nightmare cycle of falling asset prices becoming self-feeding and a dash for cash has already been prevented.


Mostly a complete bullshit story-

M1 velocity alone tells you there is a tendancy to hold cash-


Tue, 05/07/2013 - 00:29 | 3536654 SnatchnGrab
SnatchnGrab's picture

Somebody on this board once said, "money (specifically paper money) is not wealth. It is currency. It is a promise to pay (and my opinion is it would be "paid" by more paper) from the government. Once you understand that paper money is not WEALTH, yourway of looking at things changes instantly.

Tue, 05/07/2013 - 06:26 | 3536847 Optimusprime
Optimusprime's picture

When is ZH going to feature a serious look a some different but genuinely insightful perspectives on the inflation/deflation debate?

What of the views of the eminent Antal Fekete, for instance? 

Take a look:

edit:  I see blindman has anticipated me here.  Good call, blindman.

Tue, 05/07/2013 - 08:49 | 3537118 blindman
blindman's picture

The Shining - Jack and Lloyd
" your money's no good here...orders from the house." Lloyd

Do NOT follow this link or you will be banned from the site!