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Guest Post: The Deflationist Error

Tyler Durden's picture


Submitted by Alasdair Macleod via,

Many people believe there is a significant risk that the Irving Fisher debt-deflation theory of great depressions is still an economic threat today. They overlook the fact that Fisher published his theory examining debt-deflation events under a gold standard, which does not apply today. Financial credit contractions therefore take a different appearance.

The events he described arose as a consequence of the earlier expansion of bank credit in a fractional reserve system when the currency being used was convertible into gold. This was the case until 1933, when Fisher wrote his definitive article for Econometrica. Under those circumstances, it is obvious that contracting credit leads to a self-feeding liquidation of assets, driving their prices down, and an increasing demand for money, i.e. gold. This was reflected in the gold revaluation that took place that year.

This is not the situation today. The absence of the gold discipline allows central banks to replace credit with quantities of raw money sufficient to ensure that Fisher’s debt-deflation is bought off.

Another way of looking at it is in the context of the aftermath of the banking crisis five years ago. Before the banking crisis both banks and their customers were happily expanding their credit and debt respectively, and it was the crisis that brought a sudden end to those care-free days. There was a sudden switch in behaviour that Irving Fisher would have recognised as tipping us into a debt-deflation depression. Initially, the price effect was dramatic: in the UK for example, new luxury cars suddenly became available at discounts of up to 40%. It affected Europe and the US as well, which is why governments stepped in with scrappage schemes, cash-for-clunkers and so on. Other capital goods, such as property were similarly affected.

What had happened was an increase in preference for money over capital and consumer goods, or a dash for cash. The price effect was contained and reversed through unprecedented government intervention by TARP and other programmes in the US, and by bank rescues in the UK and Europe. This has been backed up by quantitative easing and zero interest rate policies that persist to this day.

Fisher’s debt-deflation event happened five years ago and was bought off by ensuring banks had enough new money to ride out the storm. None of this would have been possible without the freedom to expand the money quantity indefinitely. No longer do we have to find gold to repay our creditors.

Now we can consider a second question: will gold be sold in order to pay back currency-denominated debt?

This could be a factor when gold is widely owned, but it is not. The recent shake-out in gold prices has certainly taken care of that, and there has been a substantial transfer of ownership to Asian countries and Russia. These new owners generally regard gold as a refuge from paper money, not as an asset to liquidate to pay down debt. To them it is super-money, to be hoarded.

It is indicative of our economic biases that we completely overlook the differences between the sound money of 1929/30 and the infinitely expandable money of 2008/09. We make this error because today’s economists lead us astray with a fundamental belief that the state through monetary intervention can fix everything.

Even though today’s economists are a broad church they follow beliefs instead of well-reasoned economic theory. Beliefs are better left to clerics.


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Sun, 06/30/2013 - 19:47 | 3708728 Tinky
Tinky's picture

Thanks for the useful and economical post, Alasdair.

Sun, 06/30/2013 - 19:50 | 3708736 The Shootist
The Shootist's picture

Alasdair sounds very well versed in Austrian economics in all his interviews. Smart fellow he is.

Sun, 06/30/2013 - 20:14 | 3708772 DoChenRollingBearing
DoChenRollingBearing's picture

I will always continue to buy gold, at least from time-to-time.  But because of the wild volatility and the fact that short-term buyers could be hurt, I will try to refrain from telling everyone else to buy.

Unless you have children or plan to.  Then you must buy gold for the long run.


The Central Bank of DoChenRollingBaring reserves the right to buy gold at anytime, announced or not.  If someone wants to buy gold, they will have to look elsewhere as our contral bank will never sell.

Sun, 06/30/2013 - 20:55 | 3708846 LetThemEatRand
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FED disclaimer*

*Past prosperity is no guarantee of future results.  Now eat shit and die.  And remember the planet and your desire not to live in a FEMA camp before you print this disclaimer.

Sun, 06/30/2013 - 23:23 | 3709140 All Risk No Reward
All Risk No Reward's picture

We are not under a gold standard - that much is true.

But we are under a debt money bankster tyranny standard, but the author appears to not understand the subject well enough to suss out the ramifications thereof.

Let me offer my services to help him out.

>>The absence of the gold discipline allows central banks to replace credit with quantities of raw money sufficient to ensure that Fisher’s debt-deflation is bought off.<<

Incorrect paradighms does not reality make.  Let me repeat for clarity - just because one thinks something is happening doesn't mean it is happening.

The author is wrong.  Raw money is not being replacing credit.  The author is making chit up - and that's not nice.

QE does hand money over to banksters for their toxic trash at par value, but that isn't issuing raw money.

Someone needs to clue this clueless author that whatever losses the Fed takes FLOWS THROUGH TO THE TAXPAYER!  That cash being handed over to the banksters IS DEBT BASED!  The debt associated with whatever difference between the toxic values and the cash issued will come out of society in terms of blood, sweat and tears.

This money printing Big Lie fallacy has to end - it really does a disservice.

Mises nailed this one...

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
~Ludwig von Mises

Now, go find a pretty bright 5th grader and lay out the following scenario for him/her:

1. The banks run the monetary system and finance their operatives in government to do their bidding.  The banksters determine monetary policy.

2. The banksters control trillions in cash through their various mega front corporations.

3, The banksters control trillions in debt instruments with trillions in assets as collateral.

Given this information do the banksters...

1. hyperinflate, bail out the debtors and wipe out the value of their trillions in cash and debt or...

2. stick a deflationary spiked pit ahead of the eventual hyper/inflation in order to bust the debtors, wipe out their non TBTF&Jail competition, seize the indebted assets of Earth, buy up the leftovers for pennies on the dollar and proclaim themselves the rulers of an enslaved population to inextinguishable debt?

What answer do you get from a kid who can evaluate facts without the prejudice that has been instilled in the older folks?


This is basic, basic, BASIC cost benefit analysis.  If my front corporations are TBTF&J, I want to collapse all my non TBTF&Jail competition so I'm the only one standing afterwards.

Duh!  Double Duh!

I was just reading Machiavelli's The Prince today and he was very clear - when you try to conquer control of a country used to liberty, YOU HAVE TO CRUSH THEM!  There is no half stepping, because people used to liberty, or at least the illusion thereof, will not be conquered easily.




You can bet youyr bottom dollar that the international banking cartel is well versed in the Art of War (war is all about deception, the best warriors never have to fight, never ending war will bankrupt the nation) and The Prince (conquer them from inside using their own people and absolutely crush them when the time comes).

Debt Money Tyranny

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.”
~Henry Ford

Sun, 06/30/2013 - 23:46 | 3709172 markmotive
markmotive's picture

Nick Barisheff is still calling for $10,000 gold

Sounds nuts on the surface but he makes a solid case.

Sun, 06/30/2013 - 23:58 | 3709195 All Risk No Reward
All Risk No Reward's picture

Nick may well end up right, but you would do well to set yourself up to weather the deflationary spiked pit trap that is set up to convey the indebted wealth of the world to the bankster front corporations.

Anyone who thinks the banksters will bail out debtors at the expense of the banskters isn't actually thinking clearly.

One of debt money's attributes is that it is a societal asset stripping mechanism.

The textbooks won't tell you this, but if you understand third grade math and debt based money, that is what it is.

If the international banking cartel (IBC) lends a nation $20 @5%, the nation owes $21 in a year's time due to a bookkeeping adjustment that adds a $1 interest liability to society and $1 interest asset to the IBC.

Society owes $21, yet only controls $20.

Oh, a national park was put up as collateral, the IBC takes possession of it.

Now you know why the Federal government owns over 30% of the country...  handing it over to the IBC, the people who finance politicians into office, will be very streamlined.

If you think I'm kidding, again, you aren't thinking.

Mon, 07/01/2013 - 05:58 | 3709390 limit_less
limit_less's picture

ARNR - There will be no deflation. The banks and governments and more indebted than anyone ergo they will be effected the most by deflation. Governments and banks will be going to the wall before the population. 2008 as an example.

There is only one way deflation can happen without governments and banks going to the wall and that is if the government and banks manage to transfer their liabilities onto the citizens through massive and unpayable tax increases. The "massive" gets the revenue on the short term, the "unpayable" leads to mass repossesion of property due to unpaid taxes.

In short expect inflation coupled to comparable levels of tax increases.

Mon, 07/01/2013 - 07:34 | 3709479 ATM
ATM's picture

He makes one other mistake. He states that the Fed buying worthless debt from the banks at face value is not money printing. In fact that is exactly what it is.

Tue, 07/02/2013 - 02:41 | 3712966 All Risk No Reward
All Risk No Reward's picture

I epxlained this but you may well have missed it.

It is not money printing.  Why?  Read carefully:

The difference between the toxic trash's real value and the par value paid to the mega banks is debt to the Federal Reserve which will be transferred to the American people in due time.

If the Fed would just erase the difference and call it even then you'd be right.  But they won't because they are banksrters hell bent of jacking an ignorant American population and they gain power by 1. looting our monetary wealth and 2. burying us in inextinguishable debt.

All those trillions in losses that the Fed is eating will be the debt of the American of the people.  Just because they haven't bothered to tell you this yet doesn't make it any less true. 

Stealing from people who don't know they will have to pay back the stolen money is so, so much easier than stealing from people who know the theft will make them bond slaves.

If the citizens have to pay the Federal Reserve's debt, as the current law stands, then they are not printing money, rather, they are issueing cash in advance of admitting the value of the debt used to create the cash.  All that has changed is the timing of debt issuance - that's it.

Mon, 07/01/2013 - 07:54 | 3709518 sessinpo
sessinpo's picture

limit_less  " There is only one way deflation can happen without governments and banks going to the wall"



This is erroneous and what most inflationist proponents miss. At some point with to much printing, the cost becomes to high, i.e., higher interest rates. Dollars, cash, become more valuable. It beomes more of an advantage to pay for a 30k car in cash then to borrow money to pay for it at 10% interest.

Inflationist look to the 1970's and mistakenly think this is the current situation. With depressed real estate prices that are likely to sink further, that does not provide the wealth effect to borrow more to support real estate price increases.

This is more of a setup of broad based price declines in all markets.

Do you really think that the notion of massive printing is new? That is ridiculous. This has occurred many times over with the same result.

Unpaid taxes has nothing to do with it and that is a ridicoulus statement. If you confiscated all the wealth of America, you would still not be able to pay off the national debt and unfunded liabiliities.


Mon, 07/01/2013 - 16:13 | 3711222 MeelionDollerBogus
MeelionDollerBogus's picture

"Do you really think that the notion of massive printing is new? That is ridiculous. This has occurred many times over with the same result."

never has this been the result. Deflation requires a precise & targeted move to remove money from circulation, including debt, which is suicide.

Mon, 07/01/2013 - 16:09 | 3711208 MeelionDollerBogus
MeelionDollerBogus's picture

The only way to "prepare" for this "deflation" is to ensure that today you acquire less needed tangibles than if prices dropped & availability remained the same.
That's quite the risk. If I can afford the necessities today I'll buy today expecting higher prices tomorrow. Waiting for dropping prices then seeing no such condition for things I actually need leaves me empty handed at the worst possible time.

Tue, 07/02/2013 - 02:43 | 3712970 All Risk No Reward
All Risk No Reward's picture

Deflation is more about zeroed accounts than products getting more affordable.  For most, lower prices will become less affordable as their bank account, pension and investment accounts will go up in smoke.

This is no joke - these banksters mean to do violence to you and yours.

Mon, 07/01/2013 - 00:32 | 3709236 Alexandre Stavisky
Alexandre Stavisky's picture

Print and print forever.  Crushed people don't bend to open tyranny easily.  Often it erupts into the worst unrest and unknowable outcomes.  They will choose printing.  They may "row" with Crazy Ivan head fakes of deflation from time to time.  But continual effusions of thin air money will placate and pacify the populace while they may continue in an unharried relatively happy lifestyle.  Believe it or not, the elite want to enjoy the fruits of their station.  Wealth, status, station, dominion has no meaning when everyman could be an assassin.

Therefore Machiavelli takes a new world turn (it is bounded by the Pacific).  Pacify the population and lengthen out this horrible dilemma.  Even if one were to run a mock module or simulation of outcomes, inevitably pacification and printing would be top choice.  Money is not the ultimate object.  It is that unquantifiable part of society of good manners, respect, noncombativeness, GRACE.

Take GRACE, but keep money...and it is unspendable.  No, this New World is the breadbasket of the entire globe.  Despite leadership, White Face Pay, is the maxim.  The vanguard of humanity rests upon that (sometime unmoneyed) elite that keeps the cogs of the global machine whirring and output at regular pace.  Without it the world has no meaning and would be like some dandified Wall Streeter walking into an Haiti slum with all the protections and global sinews cut.  PURE MEAT.  Slay away.  No repercussions to the stripping of wealth.

Wealth has no meaning without protections from its plunder.   Wall Street desires those protections as it goes about denying it to others.

Just when does the fulcrum shift and they are to be bereft?  Printing is the only path.  A path that leads to destruction, but a much later destruction than any other roads less taken.

Mon, 07/01/2013 - 02:49 | 3709321 All Risk No Reward
All Risk No Reward's picture

Declarative statements don't necessarily turn into facts.

Do you really think the banksters are scare of people they call Muppets after they rip their financial faces off?

Do you think Corzine is worried about the people he Muppetted?

I would agree with you they should care, but I don't think they are capable.

Are they worried about the people they bomb into oblivion so they can loot a county's wealth?

Are they worried about families of the 20-30 million people they murder each year through their debt based monetary system that systematically impoveirshes and starves people to death?

I don't think you know the depravity that lies at the base of these people.

Deep down you know a deflationary spiked pit would ruin the every day, debt saturated American.  The very reason you think it won't happen is, in fact, the very reason it will happen.

When it does, understand that this was a plan and understand who did it to you, because these same criminals will foist up some new lying politician sell out who will pretend to be the savior for the problems they engineered.

Mon, 07/01/2013 - 01:10 | 3709273 Welder
Welder's picture

Bravo !


Mon, 07/01/2013 - 07:43 | 3709495 tarsubil
tarsubil's picture

I agree that the tide will go out when things get close to the realization that the debts cannot be paid back. But the author is correct, after this credit crunch the money base will be expanded in response to make the banks whole. This is the theft. The idea that the banks aren't going to want to print because that would cause inflation and devalue the cash they are holding seems odd. The cash they are holding is not actually worth anything since it can be created out of thin air.

"The banksters control trillions in debt instruments with trillions in assets as collateral."

Like MBS? The trillions in debt are not covered by assets. When this reality gets more and more undeniable there will be deflation. The banks will need more money to stay solvent and this will lead to inflation. The banks do not want to hyperinflate away. It has nothing to do with want; it has to do with the undeniable conclusion of debt based money. The debt can never be repaid and it requires the continual injection of more money into the system to keep going and the injection of money must accelerate or there will be deflationary credit crunches. This will lead to long cycles of inflation and sudden short moments of deflation until the psychological step is made among people admitting that debt based paper money is worthless (ie hyperinflation).

Mon, 07/01/2013 - 10:00 | 3709852 Cheduba
Cheduba's picture

Discussions of inflation/deflation never seem to bring up the quadrillion dollars in derivatives, oddly.  I am fully aware that central banks can just print a quadrillion dollars, but it seems more logical that everything will play out the way All Risk has described - the banks will be made whole on their quadrillion dollars of imaginary bets by confiscating real assets and enslaving the rest of humanity to "pay them back" for all eternity. 

AIG was bailed out with taxpayer dollars, making us responsible for paying back AIG's phony derivative bets they owed to Goldman Sachs.  I don't see why this wouldn't continue to happen in the future.

What terrifies me is if we all have to keep our debt and pay it back in a currency with a completely different value.  Let's say someone has tens of thousands in debt and suddenly your wage is equivalent to $0.10 an hour, but you still have to pay your full amount plus interest.

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." Thomas Jefferson, Letter 1802 to Secretary of the Treasury, Albert Gallatin

We know how this plays out from the Great Depression.  Obviously by ZIRP and global money printing, we have extended the inflation part of the Jefferson's quote for several years, but we still haven't seen the deflation part of the reverse bank robbery.  What if the plan of the bankers is to implement global deflation to strip mine everything left on the face of the earth into their hands?

Sun, 06/30/2013 - 20:58 | 3708860 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

What the author misses is debt-deflation started, but never took its full course. Most of the debt on the books before 2008 is still there. In fact, the debt pile has grown.  When you take into consideration the amount in derviative and in the shadow bank, the CBs are going to have to print quite a bit more of Bennifebux to prevent debt-deflation. The cost of most items are artificially being overvalued by cheap credit/debt.

Sun, 06/30/2013 - 21:57 | 3708984 booboo
booboo's picture

there is only one chair for each production backed dollar and there are ten thousand assholes who think that chair belongs to them and they have the paper to prove it(Bwaaaahahahahaha). You figure it out.

Mon, 07/01/2013 - 00:25 | 3709221 putaipan
putaipan's picture

a priest, a spook and a banker walk into a vault .....

Mon, 07/01/2013 - 01:28 | 3709286 InspectorBird
InspectorBird's picture

Can somebody point me to some cases in history, where fiat money regime collapsed in deflationary spiral? I would like to study those cases...

Mon, 07/01/2013 - 06:14 | 3709398 limit_less
limit_less's picture

What would be the point in a fiat currency if there were deflation? Surely the whole point of a fiat currency is so inflation can be created, otherwise we would just use Gold.

Surely "fiat currency deflation" is an oxymoron.

Mon, 07/01/2013 - 15:42 | 3711114 MeelionDollerBogus
MeelionDollerBogus's picture

indeed. To cause it must be a deliberate act & to do so always causes self-injury.

Mon, 07/01/2013 - 07:40 | 3709489 sessinpo
sessinpo's picture

From article: "Under those circumstances (money backed by gold), it is obvious that contracting credit leads to a self-feeding liquidation of assets, driving their prices down, and an increasing demand for money, i.e. gold."

And perhaps you can tell me when eventually contraction of credit or money supply does not lead to self-feeding liquidation of assets? My point is it happens whether it is backed by gold or not and that is the fallacy of Alasdair's post.

Everyone seems to miss this. Economic booms lead to excess in liquidity and over capacity (mal investment). That turns into a bust and that occurs with or without gold as the backing of a currency.


Did you know that the US had a depression prior to 1929 and before the Federal Reserve?



Sun, 06/30/2013 - 19:49 | 3708735 ClassicCommodity
ClassicCommodity's picture

The assumption deflationsists have long term is pretty laughable. That Those silly bits of paper are going to buy more things LOL. Ok then.

Sun, 06/30/2013 - 20:58 | 3708856 LawsofPhysics
LawsofPhysics's picture

Indeed. No society/currency has ever collapsed/died because thier purchasing power was too strong. Deflation is progressive propaganda.

Mon, 07/01/2013 - 03:21 | 3709334 dunce
dunce's picture

I think there was a country that went down despite a strong currency but not because of it. That country is Spain after they stole all the gold from the new world. The primary causes of their failure was a political system  of hereditary dictators with the consequent central economic planning and control that misallocated capital to a spectacular extent. Historians do not see it that way, but most historians know nothing of economics.

Mon, 07/01/2013 - 06:30 | 3709404 Praetor
Praetor's picture

Plus constant wars in Europe depleting the teasury.

Tue, 07/02/2013 - 02:45 | 3712973 All Risk No Reward
All Risk No Reward's picture

Everything is relative to the banksters.  Did you know that Weimar was a deflation from the perspective of the Western banksters?  Did you know that Argentina was a deflation from the perspective of the Western banksters?

Stop thinking like a serf and start thinking like a financial oligarch.

This isn't checkers, this is 4 dimension chess and that isn't bankster rain on your leg.

Sun, 06/30/2013 - 23:32 | 3709149 All Risk No Reward
All Risk No Reward's picture

Your thinking is too myop[ic, too limited.

Inflation **is** the end game almost certainly.

But what you miss is the fact a deflationary spiked pit preceeding that inflation will act to convey the world's hard goods to the banksters who run this system by busting debtors and allowing their TBTF&Jail front corporations to buy the rest up for pennies on the dollar.

They inflated when it served their purposes.  Now they are looting the economy.  They will begin to bust the economy and consolidate it under their control.  Once they own almost all the hard goods (meaning society will own very little, THEN they will hyperinflate to "balance their books" and proclaim that "capitalism failed' when we live under Debt Money Tyranny with a capitalist veneer.

Most of the people who are right about inflation being the end game are going to get **COLD CRUSHED** by what preceeds it... 

What preceeds it will occur because it benefits the people calling the shots - period.

If you think people who hold trillions in money and trillions in debt are going to hyperinflate their paper wealth away, you are less savvy than you think the bankstrers must be.

Mon, 07/01/2013 - 01:36 | 3709291 InspectorBird
InspectorBird's picture

I agree with your logic, but you forget one thing. The moment banksters create deflation, then governments will HAVE TO legitimately default, and no shenanigans, they will have to truly default on naional level. If that happens, governments will likely lose control over people. I dont think this is what they want.

Mon, 07/01/2013 - 02:42 | 3709319 All Risk No Reward
All Risk No Reward's picture

IB, I appreciate the dialogue.  I have considered that and I observe my government preparing for battle with the American people...  the police state and military are not funded by tax dollars, but by the issuing of debt via the Federal Reserve.  The police and military are extensions of the banking cartel, NOT America where people recite the Pledge of Allegiance as the Republic lay in ashes.

My premise is that there is no way to avoid a confrontation between the criminals and the people.  Lord Acton highlighted this as the fight of the millenia and he was right.  The mega banksters vs the people.

So what has the bankster financed government done in the past 1-2 years?

1. Declared America a battlefield - NDAA.

2. Declared the right to assassinate anyone they want without trial or public display of evidence, even on American soil - NDAA

3. DHA has purchased 1.6 billion rounds of ammo "to save money."  Uh, one doesn't buy 100s of millions of hollow point ammo to save money, so they are lying.  Search "1.6 billion bullets Forbes" for more details.

4. DHS put an order in for "no more hesitation" gun range training targets of an American looking child, an American looking pregnant woman and an American looking set of grandparents.  I couldn't make this up.

5. The military is free to be let loose on American soil.

6. An Army manual has been put out that speaks of detaining American citizens.

7. The demonization of everything libertarian or Constitutionally oriented on the propaganda networks.

8. The spy grid where Americans are all deemed potential terrorists that need to be watched.

The point is that collapse is coming and the people are going to be mad.  One versions burns trillions in bankster wealth and the other hoists them up as King of the World.

Do you really think a bankster would be able to turn down King of the World?

I don't.

One could even argue that they sit offshore and want to cause a civil war in America so they can then make the case to disarm populations and countries and consolidate military power in the bankster UN military forces.

"Today Americans would be outraged if U.N. troops entered Los Angeles to restore order; tomorrow they will be grateful. This is especially true if they were told there was an outside threat from beyond, whether real or promulgated, that threatened our very existence. It is then that all peoples of the world will plead with world leaders to deliver them from this evil. The one thing every man fears is the unknown. When presented with this scenario, individual rights will be willingly relinquished for the guarantee of their well being granted to them by their world government."
--Henry Kissinger, Speaking at Evian, France, May 21, 1992. Bilderberg meeting.

Russia To Share Military “Security Experts” With United States During Mass Disaster Incidents and Emergencies

Chit is gettin' real.

Mon, 07/01/2013 - 06:33 | 3709405 limit_less
limit_less's picture

Inspector - I dont think it is about control but profits. How are the money centre banks going to stay afloat if their biggest customers go out of business ie governments? At best their income is going to be slashed if they dont have governments borrowing money and the taxpayer servicing the huge debt.

Mon, 07/01/2013 - 15:40 | 3711108 MeelionDollerBogus
MeelionDollerBogus's picture

It can't be about profits. To show profits and/or spend them requires only fraud and/or money printing. They can do that endlessly now: no prosecution for criminals caught in the light of day.
This is about power that can be bartered only by threats, influence peddling & war. Those stand upon the influence of central banks & drones now.

Tue, 07/02/2013 - 23:16 | 3712976 All Risk No Reward
All Risk No Reward's picture

Read this chapter of tragedy and Hope (1966):

Quigley lays it all out in the open for those with eyes to see.  That chapter is mind blowing if you understand the truth of what he says.

Tue, 07/02/2013 - 00:08 | 3712723 All Risk No Reward
All Risk No Reward's picture

Have you ever stopped, taken a deep breath and considered, just for a few moments, the true meaning of "Too Big To Fail (and Jail)?"

Do it.  They want to be the only institutions left standing.

Sure, they may get 1/10 out of each person, but with their competition annihilated, they will have more than 10x the "serfs" shopping at the "company store."

Not to mention nearly everyone will be renting from them if they want to live off the streets.

Have even considered that the Rockefellers and the megarish don't pay any taxes on their mega estates while you get bonoe nicked?  You should.

"The game is rigged, the table is tilted..." -George Carlin


Mon, 07/01/2013 - 10:18 | 3709908 moneybots
moneybots's picture

"The assumption deflationsists have long term is pretty laughable. That Those silly bits of paper are going to buy more things LOL. Ok then."

Fiat Japan has deflated now and again over the last 20 years.


I don't konw of any deflationist that expects long term deflation.  The 1930's deflation lasted a few years during which the DOW deflated 90%.

Tue, 07/02/2013 - 00:36 | 3712770 All Risk No Reward
All Risk No Reward's picture

Denninger is thinking about 10 years and Nicole Foss thinks along similar lines.

My view is that it will last as long as the banksters need it to mop up the public's indebted assets that they formerly thought was their own before paying it off.

People WAAAAY underestimate the RAW POWER of controlling the money supply of a nation. 

I hate to break it to you, but the mega banks and the Federal Reserve are ALL controlled by the same international banking cartel.

That's why they don't rat each other out.  They are all just a piece on the Grand Chessboard used by the Grand Chessmaster to conquer his opponent (that's you and yours, as well as me and mine).

I don't know how long it will last, but I am trying to learn how to garden and I do feel uncomfortable not having more land on which to garden and raise chickens and goats.


Sun, 06/30/2013 - 19:52 | 3708740 The Shootist
The Shootist's picture

Gold is "super-money," or just actual, veritable money.

Sun, 06/30/2013 - 19:54 | 3708743 q99x2
q99x2's picture

I liked the article.

On another note: Egypt sovereign debt against default in the credit default swap (CDS) market has risen to record highs.

Sun, 06/30/2013 - 19:55 | 3708745 digalert
digalert's picture

Remember, back in the 1929/30 days, gold was money. Not today though, the Bernanke even said so.

Sun, 06/30/2013 - 19:56 | 3708746 sudzee
sudzee's picture

I'm lookin forward to the day bonds and stocks drop bigtime. The demand for dollars will be ginormous resulting in one physcal dollar rising to 750 digital dollars. I'd be able to take 500 or so physical dollars from the Bank of Sealy and run to the BoA and pay my morgage in full.

Sun, 06/30/2013 - 19:59 | 3708752 The Shootist
The Shootist's picture

I bet that's less likely than $10,000 gold.

Sun, 06/30/2013 - 20:17 | 3708775 DoChenRollingBearing
DoChenRollingBearing's picture


It ia always smart to have some physical long green $ around for the unexpected.  I don't know about that ratio, but if they close the banks or freeze the accounts, CA$H is king, at least for a while.

Sun, 06/30/2013 - 22:53 | 3709090 PiratePawpaw
PiratePawpaw's picture

That has been my position. I have maintained a sgnificant cash reserve in my safe with the expectation that, if and when its begins to fall apart, cash will for a time be king.

All the while I have been steadily increasing my holdings of physical assets.

But to be honest, the way things have been going lately, I dont know what the hell to do. I think I am just continueing out of habit rather thsn confidence im on the right track.

Sun, 06/30/2013 - 22:02 | 3708999 delacroix
delacroix's picture

It costs 3 cents to print a bill in any denomination

Sun, 06/30/2013 - 23:34 | 3709151 All Risk No Reward
All Risk No Reward's picture

I think most digital dollars get zeroed out, starting with the fractionally reserved banks "deposits."

Sun, 06/30/2013 - 20:00 | 3708753 LetThemEatRand
LetThemEatRand's picture

"Even though today’s economists are a broad church they follow beliefs instead of well-reasoned economic theory. Beliefs are better left to clerics."

Amen.  But can we get rid of the clerics too?

Sun, 06/30/2013 - 22:02 | 3708998 MachoMan
MachoMan's picture

Humans aren't ready for the training wheels to come off just yet...  If you tell little Suzie that we're all alone and our future is our own, then she might get scared at the responsibility.

Mon, 07/01/2013 - 00:36 | 3709244 Voicefather
Voicefather's picture

"Our posturings, our imagined self-importance, the delusion that we have some privileged position in the Universe, are challenged by this point of pale light. Our planet is a lonely speck in the great enveloping cosmic dark. In our obscurity, in all this vastness, there is no hint that help will come from elsewhere to save us from ourselves." - Carl Sagan

Mon, 07/01/2013 - 00:50 | 3709259 buyingsterling
buyingsterling's picture

Those scientists who think the universe abounds with intelligent life are usually astronomers. They see a lot of stars and think intelligence must be common. Biologists are more dubious. Many look at the numerous improbabilities leading to the existence of intelligent life and see a proposition that is so unlikely that the fact that it has occurred even once in our galaxy is astonishing. We are special. If we want life to spread throughout reality, it's probably up to us to make it happen.

Mon, 07/01/2013 - 03:33 | 3709339 Voicefather
Voicefather's picture

That life exists at all is the improbability. After that, intelligence will not be too difficult to find. I have seen it stirring in the deep. One interesting point to ponder: If humanity were to die off, would there be ANY trace of our civilization left 65 million years later? Perhaps only the lunar landers and space probes would be all that survives to prove we existed.

Sun, 06/30/2013 - 20:08 | 3708764 johny2
johny2's picture

how long can the present stock of silver and gold last with these giveaway prices? 

Sun, 06/30/2013 - 20:32 | 3708795 lasvegaspersona
lasvegaspersona's picture

about 3 weeks

and even that is not a promise



Sun, 06/30/2013 - 20:34 | 3708800 espirit
espirit's picture

The price can go down until there is no longer a supply of PM's.

Much like the unemployment rate will drop until everyone is unemployed.

Welcome to the new normal.

Sun, 06/30/2013 - 21:26 | 3708932 johny2
johny2's picture

Every drop in price must be speeding up the depletion of silver available to buy. I feel it going out of the stock may be a matter of days and weeks rather than months.

Sun, 06/30/2013 - 21:11 | 3708893 fijisailor
fijisailor's picture

It doesn't matter if all the physical gold is gone.  The FED and the big banks will simply fake its existence until they can't anymore.

Sun, 06/30/2013 - 20:28 | 3708790 john_connor
john_connor's picture

I think it is just a little more complicated than what Alasdair presents. There is indeed a deflationary aspect to what the Fed is doing. Why? Because there is one marginal buyer of treasuries out there, and eventually that buyer will have to sell. Even before the Fed owns even half of all treasuries, the market will have a heart attack. Therefore more QE is actually bad anywhere beyond the very short term, real bad. Also the player the Fed is "loaning" to is actually the taxing authority, by which enabling that authority to run negative income statements every year. But eventually that authority will, guess what, have to raise taxes to foot the bill which is deflationary.

Sun, 06/30/2013 - 20:41 | 3708801 LetThemEatRand
LetThemEatRand's picture

Well said.  And there's the fact that grandma can't afford to eat at .2% interest rates, and she really can't afford to eat when interest rates finally rise well behind the cost of real inflation for the shit we need like food as the Fed continues to depress rates artificially.  But then again, that's why all the FEMA camps and the hollow points.  I used to think shit like this was batshit crazy.  Normalcy bias will literally kill you in the next few _________ (months, years, or certainly decades -- that's where the jury is still out).

Sun, 06/30/2013 - 20:46 | 3708830 Promethus
Promethus's picture

Who does one buyer sell to?

Sun, 06/30/2013 - 21:04 | 3708874 john_connor
john_connor's picture

Exactly. That buyer can sell, but can only do so by disrupting the entire market (lower prices and higher rates) And when this market is used to price everything on the planet, well, look out.

Sun, 06/30/2013 - 20:57 | 3708842 dryam
dryam's picture

What am I missing?

We have a flawed debt based monetary system. It's an especially flawed system when banks are not allowed to fail. Thus, the entire system from top to bottom is incentivized to go further in debt, grow the money supply, and create inflation in an exponential (not linear, big difference) fashion. Exponential growth is unsustainable, and subsequent collapse is guaranteed at some point. It's simple math. Why isn't massive deflation coming? The house of cards has been meticulously built over the past few years. The Fed can not print enough to ever cause inflation. Even if it could the money would never flow through the economy (credit creation is the only true way to expand the money supply, and that game is almost up). I believe the Fed’s main goal is to keep the banks afloat, either by hook or by crook. Once the TBTF’s are in solid position then the levitation act will give way. Yes, I own PM’s and I’m not selling at any price, but I’m accumulating as much USD’s & euro’s as I can.

It’s hard for me to reconcile the fact that 96+% of our money supply is from credit money and that the Fed could even come close to filling the void with printed money, especially when it comes to actually getting that money flowing into the economy. Yes, if somehow the Fed tried to fill that massive void, the USD would lose any sense of value & there would be hyperinflation. Not knowing which side of this ever narrowing deflation/inflation balance beam things are going to fall, I’m going mainly with PM’s, currencies, and the homestead.

Sun, 06/30/2013 - 21:00 | 3708867 john_connor
john_connor's picture

I don't think you are missing much and I agree. One has to own gold just due to the systemic instability from the Fed and the TBTF that increases every day. And it is counterintuitive, but cash too. The key is to have physical possession of both. Anything electronic can be bailed in or just disappear.

But in the case of a real hyperinflation, I would really rather have access to food, energy, land, and the means to defend. And a small community of like minded folks.

Sun, 06/30/2013 - 23:42 | 3709163 All Risk No Reward
All Risk No Reward's picture

>>But in the case of a real hyperinflation, I would really rather have access to food, energy, land, and the means to defend. And a small community of like minded folks.<<

IMHO, those items are equally as important in a deflation.  Deflation is not simply prices lowering, it is pensions being cut, bank deposits being cut, government services being cut, taxes increasing, jobs being cut, distribution being cut...

Being a skilled and valued member of a community with control over the necessities of life and the ability to defend them is the single most important possession one can have.

The problem lies in the fact that it is impossible to defend against the military and police state these criminal banksters have amassed.

That's why I blow way too much time trying to get people who love the establishment malware schooled into their head to elevate up to an education.

Richartd Grove from, if ya didn't know, now ya know...


Sun, 06/30/2013 - 20:39 | 3708812 Manipuflation
Manipuflation's picture

Let's just keep the car running.  Lighten your loads of furniture but not PMs.  I have a sick feeling.

Sun, 06/30/2013 - 20:40 | 3708815 The Shootist
The Shootist's picture

On the whole "physical cash" debate. If the banks freeze accounts, won't people with accounts still be able to pay multi hundred dollar electric/ gas/ loan etc., bills with checks or direct transfer as many already do? I'm under the impression Cyprus only limited cash withdrawals.

Sun, 06/30/2013 - 23:43 | 3709168 All Risk No Reward
All Risk No Reward's picture

Oh, they've only just begun to r*pe and pillage Cyprus.  Give them time to fully pave the road to serfdom and proclaim themselves "The Fittest" and, therefore, those who must rule eveyrone else.

Mon, 07/01/2013 - 07:55 | 3709516 ootofthehoos
ootofthehoos's picture

Your impression must be incorrect because then they could withdraw all their money by writing a check or paying a bill to a friend with a foreign bank.


Sun, 06/30/2013 - 20:40 | 3708816 noob
noob's picture

well-reasoned economic theory...  wut?...


Oasis - Wonderwall - Official Video

Oasis - Champagne Supernova

Sun, 06/30/2013 - 20:41 | 3708820 0b1knob
0b1knob's picture

All of you are falling into the logical trap of false dilema.   Either there will be hyperinflation or deflation.   What we will get is just more or the same.   Stagflation and biflation forever.   The debt slaves will never be liberated by hyperinflation.   Why should they be?   If you want to imagine the future, imagine a bankster's well shined $1000 per pair curtom made shoe on the throat of humanity forever.

Sun, 06/30/2013 - 21:02 | 3708870 fijisailor
fijisailor's picture

I think you are the one who gets it.  Most at ZH are looking for hyperinflation or depression.  I think TPTB want to keep us limping along like today forever.  Anyone see a reason why they can't?

Sun, 06/30/2013 - 21:28 | 3708936 oddjob
oddjob's picture

I think some realize it will continue until the TBTF's bag of monetary tricks is empty. PM's just provide insurance against further malfeasance.

Sun, 06/30/2013 - 22:48 | 3709079 mayhem_korner
mayhem_korner's picture



Yes, TPTB want to keep us limping along forever.  However, they will not be able to - not forever.  The only thing separating the world from complete economic collapse is a lack of awareness of the actual state of the economies and that the sheeple seem OK with the fact that the only marginal buyer of the government debt financing the illusion is the counterfeit-credit-printing CBs. 

Hyperinflation is loss of confidence in the currency, irrespective of whether real asset prices (i.e., priced in something stable, like gold) are falling.  So it is possible to have a hyperinflation of the currency AND have a deflationary depression.  Which is why we PM holders may very well be sopping up real assets for a very small tender of bulllion ounces in the future.

If you think they can keep the charade going indefinitely - or at least until you and your heirs are pushing up daisies - please keep bleating and pour all of your available capital over to the equities' markets. 

This slow-motion (see Inception level three) train wreck will seem like a high-speed express once the carnage is unleashed.

Mon, 07/01/2013 - 01:14 | 3709277 Meat Hammer
Meat Hammer's picture

mayhem, if I understand you correctly, are you saying that Joe Sixpack won't be able to buy that $50,000 McMansion because he's paying $10/gal for gas, $7/gal for milk, and the banks won't be lending, so if you don't have some bullion to trade for cash to buy that house, you're renting forever?

Mon, 07/01/2013 - 04:23 | 3709362 fijisailor
fijisailor's picture

Maybe you're right or maybe Joe six pack is aware that the system is screwed but he keeps playing along with the hope that the system will eventually be saved miraculously somehow.

Sun, 06/30/2013 - 23:48 | 3709177 All Risk No Reward
All Risk No Reward's picture

There is a false dilemma as you explained, however, you didn't quite fix it by simply adding "more of the same."

There can also be waves of monetary inflation and monetary deflation.

I'm almost certain that serious inflation will be the endgame, but I'm almost certain a wicked deflation will be used to bust all the debtors and roll up real assets under mega bankster control first.

BTW, "more of the same" means "ripping society's face off by stealing trillions in cash and offloading trillion in debt to the Muppets."

Yes, that has already worked for a long time, but it will not work forever.  IOW, it will end as well.

What happens when it does?

I believe a wicked debt deflation (to steal society's assets, nothing more, nothing less) and then, eventually, a hyperinfation to balance the books - but it won't matter anyway as the banksters will be into hard good by them - you know, the stuff you think is yours now.

Sun, 06/30/2013 - 20:47 | 3708826 smartstrike
smartstrike's picture

Fisher’s debt-deflation event happened five years ago and was bought off by ensuring banks had enough new money to ride out the storm. None of this would have been possible without the freedom to expand the money quantity indefinitely. No longer do we have to find gold to repay our creditors.


This is a very naive view of economic history--the problem of debt has not gone away like during the period of 1930-1933 when at least 50% of debt was vaporized. Putting aside all the New Deal programs, when US emerged from the depths of its debt-deflation, GDP/DEBT ratio stood at 20%. This is the difference between now and then--not the gold standard.

Further, FDR bailed out the economy and not the banks, hedge funds and Private Equity speculators. The US consumer is saddled with even more debt and gigantic guarantees of private sector debt; the US government wastes money on the military and National Security which barely improve the Velocity of Money--Obama and Bernanke are not FDR and Marrimer Eccles either. So no this not like 1930-1933!

Debt/deflation is still on the horizon.


Sun, 06/30/2013 - 22:22 | 3709035 disabledvet
disabledvet's picture

first off equities have recovered so this is a powerful arrow in the Fed's quiver and says that the policy to prevent a "Japanese style" collapse has worked (for now.) Second we never had the "big jump off the bottom" as was predicted by this Administration (we should be at 4-5% unemployment according to their first term forecasts.) that says again...the Fed and Treasury was spot on. this was a collapse of epic proportions...we have not collapsed but we're barely moving forward as well. as usual articles like this are just puff pieces used to puff up the author and not you and i down here. WE will have to wait for the data to come in to see if there really is some type of "confidence building measure" with the Fed Chairman et al "baring teeth." my personal view is that they guaranteed much slower growth for the second quarter. Invest accordingly.

Sun, 06/30/2013 - 22:55 | 3709094 mayhem_korner
mayhem_korner's picture



The collapse of 2008 is a meme - the basis for all of the MSM to claim "recovery".  Stocks have NOT recovered - they are below their 2007 highs on a real basis.  No one in their right mind would consider a 5-10% loss over 6 years a recovery - EXCEPT if you adjust the context point to the interim bottom of March 2009.   

The real collapse that should have been allowed to play out was punted.  The real collapse has not happened yet.  And there is no growth and has not been for some time.  Adjust the "growth" for real inflation instead of the BLS numbers and there is no growth except in food stamps and long-term unemployed persons.

Sun, 06/30/2013 - 23:15 | 3709118 sgorem
sgorem's picture

BINGO! and we have a winner in this _korner............................

Sun, 06/30/2013 - 20:48 | 3708832 SuperCycleBear
SuperCycleBear's picture

The author fails to realize that the world is on a de facto gold standard as is seen by the rise gold has undergone since 2000. All that having an infinitelyexpanding money supply does, is provide an expansion of the process until the creditworthiness of the state is brought into question. Then bonds and stocks lose the boost to their values that had resulted from unsustainable demand support from the state's largesse.


Bottomline is this - debt deflation is inevitable in a credit based (as opposed to equity based) financial system. But a credit based system grows (and collapses) much quicker than the equity based alternative.

Mon, 07/01/2013 - 07:42 | 3709493 ootofthehoos
ootofthehoos's picture

All Risk No Reward did not say it, but I think the place to hide is in equity although it declines in price in the deflation stage. The reason why is because equity can be used as collateral for loans, to buy all the confiscated assets of debtors at low prices during the confiscation of assets and confiscation of deposits phase. This occurs just before the reflation and inflation of all equity assets.



Tue, 07/02/2013 - 00:25 | 3712755 All Risk No Reward
All Risk No Reward's picture

Noooooooooo!  Equities suck a place to store wealth in a deleveraging that will, almost assuredly, crash the nominal value of equities.

I think the #1 investment is in the real world:

1. Gain control over the necessities of life.  Direct control.

2. Be able to defend your direct control.

3. Be very valuable within a community setting where free people freely share their skills and abilities with their neighbors.

Outside of that, physical cash is good, but too much is too risky as law enforcement can now watch your withdrawals, raid your house and steal your money under phony, criminal asset forfeiture "laws."  And that's the best option for being robbed.

As crazy as it sounds, Treasury Direct linked to your credit union account might be your best best - essentially, the government is your mattress.  Note that the government bonds in Cypress didn't take a hit, just the bank deposits.  The government can be your mattress.

Buy a 3 month government bill and roll it over into the government cash account.

Having said that, you don't want the government to be your mattress for too long...  eventually they may seize your cash!  The idea is to roll your cash out of your account and dollar cost average into the collapse - buy hard assets that you can directly control.

If the gold addicts want to play gold, I seriously recommend they listen to Gary Kaltbaum on Investor's Edge every day to understand where he's coming from.  He's been out of gold during almost all of this drop, but he's eyeing a potential run up in gold based on the charts mirroring the 1970s chart of gold before it went crazy up.

Gary plays the gold ETF, which I think is foolish, but he's a man and is willing to take the risk.  I thnk he's wrong, but I've been wrong on price movements before so I keep an open mind.  If Gary jumps into gold, I might do so as well.  Maybe - and only for a trade.  My long term gold purchases will occur when the smoke from the debt destruction is obvious - even to the immediate hyperinflation and beyond gold bugs.

Not to mention Gary's football picks are astounding.  He picks two or three teams a week and beats the spread about 2 out of 3 times on a pretty consistent basis.


Sun, 06/30/2013 - 20:57 | 3708854 criticalreason
criticalreason's picture

another day. another pro gold bug.


thing is despite the QE gold isnt rising its falling; is it shorters ..doubt it...rigged markets unlikely...


maybe, just maybe none of the QE money is used to buy gold?


Sun, 06/30/2013 - 21:55 | 3708986 Treason Season
Treason Season's picture

That's right. It's really used to pay low life cockroach like, apologies to real  cockroachs out there, gold bashing trolls that seem to be multipling cockroaches these last few days here.

Sun, 06/30/2013 - 23:43 | 3709167 Alexandre Stavisky
Alexandre Stavisky's picture

The old siberian trappers still use centuries old technology.  Only need an heavy knife and axe.  Sort of a dead fall contraption.  Two upright dead standing trees.  Trim to similar height.  Create an identical slot in the top of both.  Drop a lateral purlin log in both creating a heading beam.  The distance from ground keeps unwanted vermin from the bait as well as vegetation, snow, etc.  Construct another purlin log, same as former.  Place it above bottom purlin supported by handmade wooden trip trigger.  There is some space between, gravity is the killer.  The bait is balled upon the end of a thin whittled spruce length.  This bait is just beyond any reach except a weasel like animal who crawls up using the lower purlin for support.  It reaches for the bait, exposing its long belly.  Triggers.  Log falls breaking the spine instantly but damaging neither flesh nor pelt.  Voila.  Cheap, effective, lethal.

Gold.  Trappers often say that without a dog one isn't a trapper.  CB's often say without currency using dogs there is no bank.  Dogs don't like to work for the trapper, nor do they like waiting to be fed from the hand.  It is in their blood to forage and procure for themselves.  Trapper must break that intuition.  Sometimes the dogs, still in raw training, like to sneak the bait from the traps set by the trapper.  By contact, they know the trap's action and also the allure of the bait.  Love the bait.  Tasty.  Clever they are and so take the bait without the consequence of the trap.

The best trapping dogs must be broken of the habit.  The trappers create a little more sophisticated trap just for the dogs.  Just for the training.  Once broken, once disciplined against their nature, these dogs become the finest of slavish hunters, with nearly all their capacity captured by the hunter.  The hunter is, after all, able to ply his craft on many, multiple levels.

Dogs too clever or too obstinate to break to his will earn a Mosin Nagant shot between the eyes.

Gold is the trap set to train the money dogs.

After all, in the sweep of time, this isn't the first rodeo these herd riding cowboys have entered.   Catalogues, volumes, old tomes exist of many ancient things and one of these is how to manipulate the population by purse and power.  Rod, staff, flail, and crook.  With unlimited ability to reproduce the token of labour, anyone may manipulate anything within the perusal of homo sapien deplorum, and set the value thereof and the timeline of the value thereof.

But traps work only upon the animate beings of the universe of low intelligence.  The species nearly always falls for it.  It is part of their physiognomy.  They are prey, even when predators.  Part of the hierarchy of the food chain.

Undeniably the trap has another effectiveness, the quarry cannot advise peers and the nature of the trapper remains undiscovered.  But should the animal live....

Sun, 06/30/2013 - 23:52 | 3709184 All Risk No Reward
All Risk No Reward's picture

>>maybe, just maybe none of the QE money is used to buy gold?<<

It isn't just gold, it is commodities, too.  Not oil, because the banksters have sufficiently wiped out their independent competition so they have monopoly control over its price.

That's why it is $4.00 in a depression when it was $1.20 in a bubble (around 2000).

The market is up because the public was looted and the money used to speculate on stocks and commodities.  Commodities have been hit hard...  stocks surely to follow.

Interest rates spiking.

Danger Will Robinson.


Sun, 06/30/2013 - 21:08 | 3708886 fijisailor
fijisailor's picture

The FED is well aware of the possibility of depression or hyperinflation.  It is naive to think otherwise.

Sun, 06/30/2013 - 21:14 | 3708891 QuantumCat
QuantumCat's picture

How does the Fed get their printed money in mass circulation to drive inflation if lending(credit) to main street is constrained? Tried refinancing lately? The flaw to author's argument is the impact of low monetary velocity among the masses which is simply insufficient to prevent deflation(debt destruction), at least for a short period of a few years.

Sun, 06/30/2013 - 21:47 | 3708973 HulkHogan
HulkHogan's picture

That's not the only flaw. This guy writes for a company trying to sell you gold, thus he has to say inflation is coming so he can sell more coins. Deflation is the answer, per what you wrote above, but it won't be like the 30s because the wealthy will be given money to continue to live like kings while we all starve.

Sun, 06/30/2013 - 21:19 | 3708898 tictawk
tictawk's picture

Debt and cash is used as money debt is not money.  Cash really is money.  Debt is only a promise to deliver the piece of paper that we use as cash.  There IS a difference between CASH and DEBT.  There is a shortage of CASH.  Hence when the collapse comes, the most leveraged debt will be defaulted on simply because they are promises and not cash.  After the collapse, future debt (liabilities) may be monetized. 

Over the last 40+ years, debt has proliferated and the prices of assets have been kited because of it.  After the collapse, asset prices will collapse and if the Fed resorts to monetizing the remaining liabilities, then the value of the dollar will collapse.  At the moment, debt to cash ratio is 50:1???? 


Sun, 06/30/2013 - 21:28 | 3708937 SuperCycleBear
SuperCycleBear's picture

Cash in paper form IS debt. It is an obligation of the issuer - the US Federal Reserve. 

Mon, 07/01/2013 - 11:12 | 3710086 tictawk
tictawk's picture

At some point, CREDIT/DEBT siezes up because there is too much of it and it becomes unserviceable, the economy becomes totally CASH and CARRY.  At that point, defaults occur. I agree that Cash is a liquid form of debt because our entire system is a debt based system.

Mon, 07/01/2013 - 11:12 | 3710088 tictawk
tictawk's picture

At some point, CREDIT/DEBT siezes up because there is too much of it and it becomes unserviceable, the economy becomes totally CASH and CARRY.  At that point, defaults occur. I agree that Cash is a liquid form of debt because our entire system is a debt based system.

Mon, 07/01/2013 - 15:11 | 3711015 MeelionDollerBogus
MeelionDollerBogus's picture

no, there's a shortage of wages for the masses.
There's no shortage of cash or debt.
There's a shortage of money (not cash or debt) which is tangibles only: gold, silver, copper, nickel, in use as purchasing money.

Sun, 06/30/2013 - 21:17 | 3708912 fijisailor
fijisailor's picture

Guest Post: The Deflationist and Hyperinflationist Error

There fixed it for ya Tyler.  Just add a couple more paragraphs.

Sun, 06/30/2013 - 22:18 | 3709032 blindman
blindman's picture

central planning depends on two hands working together,
one giving while the other takes away. they are directed
by the one mind and fear being seen as similarly directed.
when it comes time for the other to take away there you see
the plot and crime, the horror, where the deflation error
becomes hyped upper-inflation the center giving way to the
extremes, holding nothing.
the freedom sane men fear,
stated as a question.

Sun, 06/30/2013 - 22:25 | 3709042 fijisailor
fijisailor's picture

Yes.  The well of infinite lies

Sun, 06/30/2013 - 21:25 | 3708930 wisehiney
wisehiney's picture

Not zero bound five years ago.

Sun, 06/30/2013 - 21:40 | 3708958 john_connor
john_connor's picture

I would agree that a likely event is muddling thru stagflation except that the system grows more unstable every day, thus increasing the chance for a binary, extreme event.

For example banks, just to recapitalize themselves, are resorting to more leverage and opaqueness than ever using derivatives and outright fraud. They are doing this because of moral hazard created by TBTF. Heads, they win, tails you lose.

Mon, 07/01/2013 - 15:09 | 3711004 MeelionDollerBogus
MeelionDollerBogus's picture

binary is just a matter of threshold. What's important is how many can recover from the damage.

Sun, 06/30/2013 - 22:45 | 3709054 Quinvarius
Quinvarius's picture

Good luck trying to explain anything to a deflationist.  If a person cannot tell the difference between a bad economy and deflation, they are never going to accept the reality of what is happening.  The funny part is that is always happens exactly like this.  The economists and bankers were screaming about cash shortages in Weimar too.

Sun, 06/30/2013 - 22:33 | 3709063 robertocarlos
robertocarlos's picture

So us plebs will go bust and the masters will make bank with printed money. And it's a wash. Fuck that! There will be blood if those cock sucking bankers think they can get run that program.

Sun, 06/30/2013 - 23:07 | 3709108 Serenity Now
Serenity Now's picture

This author is advocating nothing more than money printing.  i.e., We're not on a gold standard, so we can just print our way out of deflation.

Well, sure we can!  Never mind that the purchasing power of the dollar will be destroyed, and a loaf of bread will cost $10.  Do you guys really think we can print to infinity with no consequences?  Try that at home by increasing your credit card debt every time your wages go down or your taxes go up.  Try to beat that deflation with more debt.  It won't end well.

If they were going to print to infinity to overcome deflation, they would have mailed us each a million dollar check by now.  It can't work.  It won't work, and they know it.  And you should know it.

This author's premise is that you can overcome a decrease in the money supply (deflation) by increasing the money supply (inflation).  That is so juvenile it's ridiculous.  

Sun, 06/30/2013 - 23:19 | 3709127 Flakmeister
Flakmeister's picture

Gold will exhibit phenomenal nominal gains and retain value when the dollar goes, not much disagreement on that....

But, I have a sneaking suspicion that the maximum buying power may have already been reached...

Go ahead and junk away, but think very carefully about what I said...

Mon, 07/01/2013 - 00:23 | 3709226 Tinky
Tinky's picture

"think very carefully about what I said..."

I have; you're wrong.

Mon, 07/01/2013 - 08:37 | 3709615 Flakmeister
Flakmeister's picture

Consider the price of energy and food in gold terms and get back to me...

Mon, 07/01/2013 - 14:58 | 3710976 MeelionDollerBogus
MeelionDollerBogus's picture

breakthroughs are happening in harvesting electricity from photosynthesis.
By corollary that means if we can pump electrons into thylakoids we can in fact grow crops in the dark. Underground. All over.
So now we've found a way, soon, to get more food & more energy.

Sun, 06/30/2013 - 23:47 | 3709175 Free Wary
Free Wary's picture

I don't really understand deflation, only started thinking about it when I joined ZH. But I do understand what I can see with my own eyes: 1) Extremely limited opportunities in the employment market, completely an employer's market right now. 2) My last three raises have been wiped out by inflation of food, gas and everything a family needs to buy.

Inflation has been especially harsh for my family since 2010, and the only reason we have withstood it is because we live very frugally, have a fixed mortgage which protected us from rent increases, the mortgage is less than rent,  and we have been eliminating debt payments by paying down principal.

If I could do it over again  I never would have gone into any debt for any reason and I would have saved/invested half my earned income, even if I had to live in a van for several years.

Mon, 07/01/2013 - 00:40 | 3709251 Nehweh Gahnin
Mon, 07/01/2013 - 01:52 | 3709303 Theosebes Goodfellow
Theosebes Goodfellow's picture

I found that the easy way to understand inflation / deflation was with this analogy.

Deflation is too many goods chasing not enough dollars.

Inflation was too many dollars chasing not enough goods.


Is this accurate? Not really in a complete sense but it's adequate for KISS. (Keep it simple...)


Mon, 07/01/2013 - 16:53 | 3711335 Thisson
Thisson's picture

You can use any definitions that you want, but it may be more useful to define them as:

Inflation = Increase in the quantity of money and credit relative to the quantity of goods and services in an economy.

Deflation = Decrease in the quantity of money and credit (e.g., through default on debt) relative to the quantity of goods and services in an economy.

With respect to prices, you can have prices going up (as measured in dollars) and going down (measured in gold) at the same time.  In this way, the inflationists and the deflationists can both be correct!!!

Sun, 06/30/2013 - 23:50 | 3709181 tom
tom's picture

This guy hasn't read Fisher, or he would know that the gold standard of the '20s was not a "sound money" system.

First, a large portion of US base money was backed not with gold but with foreign currencies, on the logic that those currencies' values were pegged to gold and thus equivalent to gold. Most other major countries did the same, so the total base money supply of major countries was well in excess of their total gold reserves.

Second, there was no regulation of broad money supply, which ballooned in the '20s in a credit bubble that wasn't matched till the 21st century.

The debt deflation that Fisher described does not require a gold-backed currency to happen. It simply describes the shrinkage of broad money when credit contracts. This was counteracted in the US in '08-'09 by massive Fed liquidity.

On top of debt deflation, the depression brought an additional problem of countries being unable to satisfy all the claims on gold that their currencies carried. The wave of bank runs were also runs on the dollar: people, companies and even foreign governments wanted to withdraw their bank deposits not simply to redeem their broad money for base money, but to ultimately redeem it for gold. There were not in fact nearly enough gold reserves to satisfy everyone who thought they had real claims on gold, hence panic was absolutely rational.

Mon, 07/01/2013 - 00:37 | 3709245 Nehweh Gahnin
Nehweh Gahnin's picture

Welcome to tonight's game of musical chairs!  Now, this is a challenging one kiddies.  We want all 100 of you to step onto this stage.   Great!  Now, when the music starts, start walking in a circle, and when the music stops, sit down in the nearest chair.  Got it?

Of course there are only 5 chairs!  That is what makes it challenging!

Bennie, QUEUE IT!

Mon, 07/01/2013 - 12:34 | 3710418 David Wooten
David Wooten's picture

Fisher’s debt-deflation event happened five years ago and was bought off by ensuring banks had enough new money to ride out the storm.

The author seems to be saying that QE can and will go on forever.  I doubt it.  Total debt (public and private) is still extremely high versus Gross Domestic 'Product' and if the economy ever even starts to really recover, interest rates will go up and the cost of debt servicing will go astronomically high and choke it off.  By contrast, during the Depression, total debt was greatly reduced by the start of WWII.

Moreover, there are so many instabilities and so many economic variables to watch and adjust that I doubt if the central banks will be able to handle it much longer.  Eventually, going to the printing presses will simply stop working, the economy will implode and we'll probably get deflation.

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