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Everything We Are Told About Deflation Is A Lie

Tyler Durden's picture


Submitted by Tim Price via The Cobden Center blog,

“The European Central Bank has given its strongest signal yet that it is prepared to embrace quantitative easing to prevent the euro zone from sliding into deflation or even a prolonged period of low inflation.”
- ‘Draghi strengthens QE signal’, Financial Times, April 4, 2014.

Yes, heaven protect Europe’s embattled citizens and savers from a prolonged period of low inflation. How could they possibly survive it ?

If history is any guide, probably quite well. As Chris Casey points out in his essay ‘Deflating the deflation myth’, the American economy during the 19th Century twice experienced deflationary periods of roughly 50 percent:

Source: McCusker, John J. “How Much Is That in Real Money?: A Historical Price Index for Use as a Deflator of Money Values in the Economy of the United States.” Proceedings of the American Antiquarian Society, Volume 101, Part 2, October 1991, pp. 297-373.

This during a period of “sustained and significant economic growth”. But just think of all those poor consumers, having to make the best of constantly falling everyday low prices.

In their research article ‘Deflation and Depression: Is There an Empirical Link?’ of January 2004, Federal Reserve economists Andrew Atkeson and Patrick Kehoe found that “..the only episode in which we find evidence of a link between deflation and depression is the Great Depression (1929-1934). We find virtually no evidence of such a link in any other period.. What is striking is that nearly 90% of the episodes with deflation did not have depression. In a broad historical context, beyond the Great Depression, the notion that deflation and depression are linked virtually disappears.”

In his 2008 essay ‘Deflation and Liberty’, Jörg Guido Hülsmann writes as follows:

“In the present crisis, the citizens of the United States [he could have added: and of the UK, and Europe] have to make an important choice. They can support a policy designed to perpetuate our current fiat money system and the sorry state of banking and of financial markets that it logically entails. Or they can support a policy designed to reintroduce a free market in money and finance. This latter policy requires the government to keep its hands off. It should not produce money, nor should it appoint a special agency to produce money. It should not force the citizens to use fiat money by imposing legal tender laws. It should not regulate banking and should not regulate the financial markets. It should not try to fix the interest rate, the prices of financial titles, or commodity prices.


“Clearly, these measures are radical by present-day standards, and they are not likely to find sufficient support. But they lack support out of ignorance and fear.

“We are told by virtually all the experts on money and finance – the central bankers and most university professors – that the crisis hit us despite the best efforts of the Fed [..and the Bank of England, and the ECB..]; that money, banking and financial markets are not meant to be free, because they end up in disarray despite the massive presence of the government as a financial agent, as a regulator, and as money producer; that our monetary system provides us with great benefits that we would be foolish not to preserve. Those same experts therefore urge us to give the government an even greater presence in the financial markets, to increase its regulatory powers, and to encourage even more money production to be used for bailouts.”

But as Hülsmann goes on to argue, all of these contentions are wrong, and have been proven to be wrong since the times of Adam Smith and David Ricardo. A paper money system is not beneficial “from an overall point of view”. (Nor has any unbacked paper money system ever lasted.) A paper money system does not create real resources on which our welfare depends. “It merely distributes the existing resources in a different manner; some people gain, others lose. It is a system that that makes banks and financial markets vulnerable, because it induces them to economize on the essential safety valves of business: cash and equity.”

The conventional view of deflation is that if it sets in, “the banking industry, the financial markets, and much of the rest of the economy will be wiped out in a bottomless deflationary spiral.” But as Hülsmann goes on to argue, such a spiral would not prove fatal to the lives and welfare of the general population. Rather, it would destroy “essentially those companies and industries that live a parasitical existence at the expense of the rest of the economy, and which owe their existence to our present money system.”

Let us be more explicit. Severe deflation threatens at an existential level bankrupt banks and the bankrupt governments that perpetuate their existence. Deflation is a mortal enemy to the heavily indebted state and its embedded parasites, but it is a friend to the saver and to anyone with a positive net worth. Because it is so dangerous to the debtor, (unelected) central bankers clearly feel they have no option but to incinerate savers at the altar of perpetuating an unsustainably indebted banking and political elite.

So it would seem that the euro zone, under Mario Draghi, is on the verge of outright quantitative easing, and that the ECB is also committed to using “unconventional instruments” in an increasingly desperate attempt to revive the corpse through explicit inflationism, not least by actually buying sovereign debt of dubious underlying value, rather than merely pledging to. The financial markets certainly appear to think so: the yields on Spanish 5-year government paper fell below those of their US equivalents last week. Spanish bonds yielded more than 7% above US paper as recently as 2012. And as Bloomberg pointed out, the yields on Spanish and Italian five year paper, and the yield on 10 year Irish government debt, all fell to record lows last Friday.

Whether in terms of goosed bond markets or inflated stock markets, inflated higher not necessarily by any improvement in corporate prospects but primarily by expectations of more ex nihilo money courtesy of the world’s major central banks, these are false markets. They cannot entirely be trusted – assuming that markets ever can. Fund manager Seth Klarman has written well on the artificiality of today’s markets:

“The Fed and the Treasury openly discuss the aims of their policies: to manipulate financial markets higher and to generate reported economic “growth” and a “wealth effect”. Inside the giant Plexiglas dome of modern capital markets, just about everyone is happy, the few doubters are mocked and jeered, bad news is increasingly ignored… The artificiality of today’s markets is pure Truman Show. According to the Wall Street Journal, the Federal Reserve purchased about 90% of all the eligible mortgage bonds issued in November.”

John Phelan of the Cobden Centre writes well that “the Federal Reserve has become an enabler of the financial havoc it was designed (a century ago) to prevent.”

Messrs Yellen, Draghi et al should be careful what they wish for. Inflation targeting is hardly a precise science. Achieving an entirely arbitrary 2% inflation level is bad enough for savers on fixed incomes when deposit rates are close enough to zero as to make no difference, but markets have a tendency to overshoot. Most government bond markets are clearly overbought – but in a QE world given fresh impetus by the looming arrival of the ECB, overbought markets can become even more overbought. When we don’t claim to understand the underlying dynamics (political) or the final destination (though we have our own fears), it’s much better simply not to play. From an asset allocation perspective, classic, benchmark-unconstrained Benjamin Graham-style ‘deep value’ equity is, we now believe, pretty much the only game in town – and that is where we now focus our attention, almost exclusively.

Meanwhile, we watch in disbelief as market distortions become even more untenable.


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Sat, 04/19/2014 - 16:26 | 4675972 I Write Code
I Write Code's picture

In brief, agree.

The "problem" is that in deflationary environment it may pay to delay purchases.

And can you imagine the government *cutting* social security payments annually according to the CPI?

Sat, 04/19/2014 - 16:30 | 4675976 DoChenRollingBearing
DoChenRollingBearing's picture

Let me try this again, as I am waiting to see if this might become "the story of the day".  Remarks re falling velocity of money (below Fed chart) are very welcome:

My concern is that this mixed with ZIRP = capital destruction.

Sat, 04/19/2014 - 16:47 | 4675996 knukles
knukles's picture

Dats da troof, my man.
Just begin with if it's suggested as reality or fact by da gubamint, it is a destroyer of capital and freedoms.
In other words, just about everything we are told is a lie.


Sat, 04/19/2014 - 18:48 | 4676198 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

Hope is not a lie. Change is not a lie. Hope and change as a slogan has always been a lie.

Sat, 04/19/2014 - 20:38 | 4676391 AmCockerSpaniel
AmCockerSpaniel's picture

It's the State part that's the issue with deflation. Deflation hits taxes. Just take it from there

and see how it feeds on it's self (loss of State jobs).

Sat, 04/19/2014 - 23:23 | 4676591 acetinker
acetinker's picture

The thing is- that this tightly wound spring (our economy) has to be un-wound slowly to allow the state employed lackeys time to adjust to jobs that pay much less, and require an order of magnitude more skill.

I don't think that's actually gonna happen.  We will see inflation as the bankers flame out in a spectacular supernova.  Ten cents on the dollar will be generous when the dust settles.

Sun, 04/20/2014 - 07:19 | 4676835 ArkansasAngie
ArkansasAngie's picture

The ends do not justify the means.

Save the banksters?  People will be hurt?

Horse manure.

Zirp is theif.  Inflation is theif.  Bailouts are thievery on a grabd scale.

The only arses being saved today are the 1%'ers.

Lets start with redistribution of wealth from the insolvent being kept in business by liquidity.

Leave no incumbant in office.


Sat, 04/19/2014 - 21:04 | 4676418 Soul Glow
Soul Glow's picture

Hope is the laziest word in the English dictionary.

Sat, 04/19/2014 - 17:11 | 4676022 Colonel Walter ...
Colonel Walter E Kurtz's picture

My velocity (and probably most here at ZH) is at stall speed in order to prepare. If the politicians would be honest, I see radically rising taxes in the near future, ...but much more likely, I forecast bail-ins! Get out of debt and be stealthily liquid is the prescription for that which comes.

Sat, 04/19/2014 - 17:29 | 4676055 negative rates
negative rates's picture

That would then be an idle mode, no speed involved.

Sat, 04/19/2014 - 17:44 | 4676085 samsara
samsara's picture

Convert liquid financial assets to ones you physically possess. Food systems, living area, tools, Au/Ag, maybe 308's or 45's, energy systems, etc.

Get out of the "System".

If you don't have it in your physical possession, you don't own it.

Sat, 04/19/2014 - 23:07 | 4676575 dirtscratcher
dirtscratcher's picture

Convert liquid financial assets to ones you physically possess. Food systems, living area, tools, Au/Ag, maybe 308's or 45's, energy systems, etc.

Get out of the "System".

If you don't have it in your physical possession, you don't own it.---Samsara


Heard it a million times-and I still like it.


Sat, 04/19/2014 - 17:38 | 4676072 Stares straight...
Stares straight ahead's picture

Zirp, in theory, would cause increased velocity.
Since the opposite is happening, sumtin' else is afoot.

Debt pay down is a possibility?
Can get less than 4% on some commercial loans. We are paying off principal as much as possible and buying meat on sale, for example.

It's all broken....

Sat, 04/19/2014 - 20:26 | 4676378 Beam Me Up Scotty
Beam Me Up Scotty's picture

Meat's on sale?? Where??

Alpo maybe...

Sat, 04/19/2014 - 21:30 | 4676455 Deathrips
Deathrips's picture

Oh currency's too valuable to buy anything with.


Gimme a fucking break.



Sun, 04/20/2014 - 12:58 | 4677235 socalbeach
socalbeach's picture

Hussman has written several commentaries on the "liquidity preference" curves.  The "liquidity preference" is just the inverse of the velocity, but he uses the velocity of the monetary base vs the velocity of M2.  The bottom line is that if short term interest rates rise, either the Fed has to drain reserves or we're going to get unacceptable price inflation.

Sat, 04/19/2014 - 17:00 | 4676010 bugs_
bugs_'s picture

Here in the Deflationists Lounge we note that by using fradulent CPI calculations the federal government has been cutting real social security checks for years!  When THE DEFLATION begins in earnest expect the federal government to continue to calculate a bogus CPI - then to understate actual deflation instead of understating actual inflation.  An odd juxtaposition - responsible for the tide and fighting the tide.

Sat, 04/19/2014 - 19:06 | 4676236 daveO
daveO's picture

'When'? There will be no 'when' until the government collapses, like the USSR. That's the kind of system we're stuck in(a rigged one). There are too many parasites. The host will not survive. Instead of deflation, watch out for Hyper-Youknowwhat. They must feed the freeloaders (at all levels) until the dollar becomes worthless.

Sat, 04/19/2014 - 17:09 | 4676020 Buckaroo Banzai
Buckaroo Banzai's picture

"The "problem" is that in deflationary environment it may pay to delay purchases."

Um, yeah. The computer industry seemed to do OK even though their products, on a price/performance basis, dropped in price dramatically every single year.

Sat, 04/19/2014 - 17:13 | 4676026 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

So all of the companies, from Walmart to Amazon, who are desperately trying to provide lower cost goods, should stop what they're doing, because their clients will buy LESS from them as things become cheaper? Lower prices will REDUCE demand?

Sat, 04/19/2014 - 19:07 | 4676237 daveO
daveO's picture

Da, Comrade. You understand ones patriotic duty!

Sun, 04/20/2014 - 00:05 | 4676639 TheReplacement
TheReplacement's picture

Not to worry.  igadgets will be cheaper.  They will be so cheap they will become a right.  So riteous shall they become that they will be compulsory.  Yay!

Sun, 04/20/2014 - 09:41 | 4676999 zeroheckler
zeroheckler's picture

'The "problem" is that in deflationary environment it may pay to delay purchases.'

Sure, we'll delay uptake of food for a week at a time; no gasoline for my car for a while - walking 20 miles roundtrip to work. Oh yes, and surgery can wait for a year or two until it is cheaper.

Sat, 04/19/2014 - 16:27 | 4675973 Troy Ounce
Troy Ounce's picture


Time to burn down the castle and start over with fresh ideas and new people.


Sat, 04/19/2014 - 16:49 | 4675998 prains
prains's picture

Yes....the entire idea of "bank" needs to be reset along with the reset...and maybe we could just quieltly remove ALL the a pasture, with flowers and a swing

Sat, 04/19/2014 - 16:30 | 4675978 booboo
booboo's picture

I would gladly let my yellow go to 50 dollars (hell zero for that matter) an oz for the trade off of burning the chaff of deadbeat parasites off the ass of this dog. Anyone wishing for a hyper inflationary blow off needs to be in a rubber room and will be if that is the way out of this shit storm.

Sat, 04/19/2014 - 19:11 | 4676244 daveO
daveO's picture

I don't wish for it, but I can see it's headlights. There's almost no way out. The Repugnants in Congress would rather collapse the dollar than be called racists for shutting down the government. Vote for either party, and buy gold before, during, and after the election.

Sun, 04/20/2014 - 00:06 | 4676640 TheReplacement
TheReplacement's picture

What election?

Sat, 04/19/2014 - 19:11 | 4676246 daveO
daveO's picture

I don't wish for it, but I can see it's headlights. There's almost no way out. The Repugnants in Congress would rather collapse the dollar than be called racists for shutting down the government. Vote for either party, and buy gold before, during, and after the election.

Sat, 04/19/2014 - 16:35 | 4675983 debtor of last ...
debtor of last resort's picture

There are no savers anymore. So let's hit it.

Sat, 04/19/2014 - 16:37 | 4675986 Doom and Dust
Doom and Dust's picture

Creditors profit from deflation while debtors suffer. Ergo, the rich get ultra-rich and the poor go ever deeper in debt. What's not to hate?


Sat, 04/19/2014 - 17:05 | 4676015 booboo
booboo's picture

You mean the responsible folk get a sausage up the ass and told to walk it off and debt monkeys get a pass. If you think they are going to let the proles make $10,000 a week to pay off your college, car, rent a room, gambling and general fuck off debt guess again. The connected survive under any scenario, at least you and your offspring got a fighting chance under deflation.

Sat, 04/19/2014 - 17:11 | 4676024 Solarman
Solarman's picture

No they don't, the poor in debt default.  While those not in debt have more disposable income.

Sun, 04/20/2014 - 09:46 | 4677011 csmith
csmith's picture

Bingo. The Fed is all about preventing default EX POST, which simply cements the power of the banks and the bureaucrats. A well functioning economy avoids excessive risk NOT thru this sort of BS, but adequate cash and equity levels throughout the system.

Sat, 04/19/2014 - 17:19 | 4676036 Sean7k
Sean7k's picture

You really fail to understand this very basic concept. One, it rewards savers. This implies that people will change their habits from consumption to saving and investment (read: more production, employment, etc). Two, it INITIALLY rewards creditors, only because people have become so accustomed to spending their earnings, both present and future, rather than keeping debt levels manageable.Three, you assume the rich have no debt, when the reverse is true. Like most people, some have more debt than others. Four, lower prices benefits the common worker. People on pensions and SS are not poleaxed by fake CPI numbers.

Finally, it is also associated with real interest rates (remember those?) which allows people to price currency correctly and time investments to create profitable production. Deflation is the best thing that can happen.

Sat, 04/19/2014 - 17:39 | 4676077 Doom and Dust
Doom and Dust's picture

Not to put too fine a point on it because I hate our centrally managed world of ponzi finance as much as the next guy, but historically inflation has acted as the great equalizer.

I just finished Pikketty's book and his data leave no doubt that it was the inflation caused by two successive world wars that depleted the fortunes of the 1% - or rather, 0,1% - and created a level playing field for the emergence of the middle class.

The rich - i.e. the top 1 percent and especially the top 0.1% - get most to all of their income out of capital gains. They profit the most from deflation. And no, rich people, real rich people, don't have net debts. By definition.

Even the small time savers most of you seem to be referring to don't profit as much from deflation as they might think, given the ultra low interest rates that accompany it.

Sat, 04/19/2014 - 17:48 | 4676094 css1971
css1971's picture

Capital gains are inflation.

You're simply wrong.

Sat, 04/19/2014 - 18:22 | 4676136 NakedEconomics
NakedEconomics's picture

I'm not clear that deflation rewards the rich.  If anything, deflation rewards those who have savings, and those living hand to mouth (assuming they can still find work during a defationary environment). Basically anyone who isn't leveraged to the max.  This could be 0.1%, but it also could be middle or lower class living within their means.


Inflation steals from those who have cash, and not hard assets, as well as those living at or below the poverty line.  Isnt' that far more likely to be the poor than the rich?


If I understand your point about the top 0.1%, their wealth lies in hard assets.  Hard assets do well in inflation and deflation, since they will always be worth a relative amount of value.  So this class of individual isn't affected in either case.  They still own a massive amount of the "pie" regardless of the total size of the pie. ;)



Sat, 04/19/2014 - 18:27 | 4676163 Sean7k
Sean7k's picture

If that is true, why didn't wealth concentration start until 1980? What happened from 1950 to 1970? Why was the period durin WWII a time of minimal waelth disparity? (Their charts). No, it was dollar inflation caused by the destruction of the gold standard in 1970, that paved the way for an out of control money supply, increased leverage and gamblng by the only class capable to really take advantage of it- and then they were bailed out when it did collapse.

Capital gains, as in stocks and bonds? Deflation kills stocks. Let's see how well they do if the market crashes to 2009 levels... oh yeah: Bailouts! Ultra low interest rates? Really? What do we have now- HISTORICALLY low interest rates. 

You must have some great filters on in your world...

Sat, 04/19/2014 - 19:14 | 4676253 Doom and Dust
Doom and Dust's picture

What destroyed the gold standard and Bretton Woods was US financial incontinence, due to politicians sucking balls left (Great Society) and right (Vietnam)

The US government was already trying to print its way out of debt at the time, running inflation rates >5%. But then foreign countries came demanding gold for green and they had to close the gold window.


Sat, 04/19/2014 - 22:30 | 4676516 Sean7k
Sean7k's picture

The question wasn't what destroyed the gold standard, which was a political decision to stop the outflow of US gold reserves, the question concerned your inability to read a chart and make assumptions regarding effects. Exactly what is "financial incontinence"? New economic term?

The US government has been printing money for debt since 1913, however, it really took off in 1971 as the CHART SHOWS. If you are going to appeal to an economist's argument, you need to understand the material enough to defend it. 

Now, that being said, I haven't read the author's book, nor do I plan to. Anyone silly enough to not understand why disparities exist in wealth levels or attempting to create an explanation is merely another academic attempting to hide the obvious: to wit, they run the show. It is the confluence of State coercion and corporate malfeasance denominated in debt notes of no real value defended in a compliant media that creates wealth disparities. 

None of which speaks to deflation, which is a godsend to savers, retirees and workers.

Sat, 04/19/2014 - 19:21 | 4676267 daveO
daveO's picture

The first Texas Instruments calculator, I remember, cost $400, forty years ago! Productivity matters most. Ours has been shipped to Asia since those world wars. That author doesn't seem to know what he's talking about. Let me guess, he's an Ivy League shill. The rich people, today, are more likely New York parasites who profit from offshoring. Not many Henry Fords around.

Sat, 04/19/2014 - 20:36 | 4676388 NickVegas
NickVegas's picture

That's what I was thinking exactly. Henry Ford claimed 1000 thousand new customers for every $100 drop in price. Based on our understanding of Ford's history, it was an accurate account of the business mechanics. Ah, but who cares, some Yalie wants you to fear saving so you are consumed by the beast. Debt is freedom, ignorance is war, and death is strength.

Sat, 04/19/2014 - 22:02 | 4676486 BidnessMan
BidnessMan's picture

Not so. The same families in Germany that owned all the big industrial companies in 1914 still owned them in 1949. Paper comes and goes, but ownership of assets is what counts.

The middle class saver and pensioners who "followed the rules" are who got wiped out.

Sun, 04/20/2014 - 00:14 | 4676647 TheReplacement
TheReplacement's picture

Sure but how can you deny that we aren't going to have massive inflation first?  Deflation means a stronger dollar.  Inflation is what is happening - currency printing and typing.  It depends on if inflation takes us over the edge or if another reason kills the dollar. 

Who can possibly know for sure what will happen?  I'm certain that Obama thinks one thing, Yellen another, and guys like Putin another and so on and so forth.  Everyone has a part to play.  In a way this is like the one world government race to the bottom to find out who ends up on top.

Sat, 04/19/2014 - 17:32 | 4676060 Unknown Poster
Unknown Poster's picture

You assume the rich are not debtors. With current extended margin debt levels on financial instruments and high end real estate bought with borrowed money, I am not so sure.

Sat, 04/19/2014 - 17:45 | 4676089 Doom and Dust
Doom and Dust's picture

Again, of course the real rich don't have net debts. They wouldn't count as rich if they did. Also, I'm talking about the richest centile and especially the top 0,1% - still more than 300.000 people in the US. They inherit wealth and live off it. They are the new aristocracy, and they will become worse and more oppressive than the Old World's after prolonged deflation. That's what's at stake.

Sat, 04/19/2014 - 18:03 | 4676126 Unknown Poster
Unknown Poster's picture

Agreed that deflation hurts debtors, but no net debt doesn't imply no debt. The ultra wealthy will attempt to shed debt, but if a signicant portion is in shares of debt laden companies can they roll that off easily.

Sat, 04/19/2014 - 19:24 | 4676269 daveO
daveO's picture

I wonder if they own any gold? The old aristocrats did. If not, they'll be more like USSR Communist party honchos in 1992. Turn to crime or be left out.

Sat, 04/19/2014 - 17:45 | 4676087 css1971
css1971's picture

Deflation benefits those who deal in cash and penalises those in assets. The rich do not get richer in a deflationary environment. Which is why it's so rare. The people who benefit the most are the poor and those on fixed incomes ; retirees.

See Japan. CEO salary multiples vs the average employee : 16x average. In the US: 75x average. That's deflation for you.

Sat, 04/19/2014 - 18:17 | 4676151 NakedEconomics
NakedEconomics's picture

I might clarify, "penalises those who are leveraged", not those in "assets", if you define assets as "hard assets". 


If you own your apartment building outright, or a hord of gold, deflation would change the value of those assets relative to paper currency, but they still have the same intrinsic value.  You are still worth the same, relatively.


Agreed - those living within their means or on fixed incomes, will benefit in deflationary times.

Sat, 04/19/2014 - 19:29 | 4676278 daveO
daveO's picture

Metal holders are likely to be better off. As banks go under, loans become more scarce, so there's a multiplier to the downside. At the same time, people would scramble to a safe haven money.

Sat, 04/19/2014 - 16:42 | 4675987 Hannibal
Hannibal's picture


Sat, 04/19/2014 - 16:39 | 4675988 withglee
withglee's picture

Since virtually 100% of government funding comes from INFLATION (taxes and INTEREST payments don't come close to equaling their DEFAULTs ... e.g. rollover of existing debt is DEFAULT), less than zero INFLATION is fatal to existing governments. Only very tiny new governments could function ... providing only those services that couldn't be obtained privately and for which those served would welcome by paying in taxes. All governments (after day 1) move away from that position when non-zero INFLATION can exist.

Sat, 04/19/2014 - 16:44 | 4675989 Hannibal
Hannibal's picture

Everything we know, is wrong!


Sat, 04/19/2014 - 17:19 | 4676032 Buckaroo Banzai
Buckaroo Banzai's picture

(NCOIC): "What to do if an alien appears! ONE!"
(The General): "Drop beneath the seat of your plane and look away."
(The General): "Avoid eye contact."
(The General): "If there are no eyes, avoid all contact."

(One second burst of ringing alarm bell)
(NCOIC): "How to identify alleged sightings! ONE!"
(The General): "Pie plates, or as reflections in the atmosphere."
(The General): "Dry cleaning bags filled with marsh gas, or..."
(The General): "Mass insanity!"

Sat, 04/19/2014 - 16:47 | 4675995 Sudden Debt
Sudden Debt's picture

I don'tt hink they're going to print at all.

1. they're talking about "assisted investments of sleeping savings accounts"
2. Private pension funds should not be that private
3. tax the rich and when they notice they're already all gone, it will be tax everybody who has a job.

Number one will be first. they won't call it a bail in at all. They're going to help us....
The OESO has some extensive papers published already on this topic that makes a normal person who bothers to read that crap wanne puke.

Sat, 04/19/2014 - 17:20 | 4676039 seek
seek's picture

Agree. The next big drop, they're done printing and it's bail-ins all the way.

All the legal framework has been in place for several years now. Woe be to those that only have assets within the system.

I still wonder if they'll try something like a national property tax to suck up money from people who have their largest asset -- their homes -- held free and clear of the banking system. You know that's just got to piss TPTB off to no end.

Sat, 04/19/2014 - 17:39 | 4676075 css1971
css1971's picture

And this is why I now only keep expenses in my bank accounts.

You would have to be insane to keep money beyond what you absolutely must in a bank,

Sat, 04/19/2014 - 18:11 | 4676141 RaceToTheBottom
RaceToTheBottom's picture

They keep on raising the "Guaranteed Amount" in banks to suck them in...

Sat, 04/19/2014 - 18:20 | 4676155 seek
seek's picture

Worked in 2008 to stop the outflows.

This go-round, though, I don't think they'll do anything to suck people in -- it's mostly all in the system anyway. Instead, they'll lock the doors, hand you a receipt payable post-hyperinflation, and grab your money.

Sat, 04/19/2014 - 19:31 | 4676282 daveO
daveO's picture

The EU's already planning Cyprus #2. They'll do it there first.

Sat, 04/19/2014 - 18:43 | 4676193 nightshiftsucks
nightshiftsucks's picture

Not so sure about the bail in's,they've been aying everything is okay all along and now it's and they're going to take our money ? Either way we collapse,they will print all the way to the bitter end.

Sat, 04/19/2014 - 19:36 | 4676295 daveO
daveO's picture

Here's a plan. 1.Pull(taper) QE. 2.Allow markets to crater. 3.Then offer Bail-ins as a solution(salvation). Cyprus was said to be the testing ground. I don't know how many years that will buy them, but it is deflationary. That means another round of QE to further enslave us all.

Sat, 04/19/2014 - 16:51 | 4676000 Sudden Debt
Sudden Debt's picture

“The measures approved on Tuesday, which some critics said did not go far enough to protect taxpayers, include a law confirming a guarantee on deposits up to 100,000 euros, or $138,000.

Another law, a bank recovery and resolution directive, gives the 28 states in the union a common rule book for handling failing banks. That law would also oblige creditors to take extensive losses before state funds are used.

The other main law voted on Tuesday, a regulation for a single-resolution mechanism, establishes a board to ensure that the owners and creditors of major lenders in the euro zone pay first in cases of failure. That regulation would also establish a common fund of €55 billion, to be built up over eight years, financed by all euro zone banks to help cover the costs of closings.”

Sat, 04/19/2014 - 17:01 | 4676012 eddiebe
eddiebe's picture

Exactly right, and that's why the central banks will keep inflating, all the while changing metrics and stories to make it look like there is no inflation.

Sat, 04/19/2014 - 20:15 | 4676031 1stepcloser
1stepcloser's picture

Deflation is debt collapse.  Deflating currency supply will show how the debt base monetary system is F'ed.  Banks only create the prinicple...but the slaves must find the principal and interest from the currency supply.  If the supply is shrinking, debts can't be serviced.  BOOOM!

Sat, 04/19/2014 - 17:17 | 4676034 seek
seek's picture

Deflation kills banks. They're why they're hysterical over it, there is no other reason.

Sat, 04/19/2014 - 17:23 | 4676041 Buckaroo Banzai
Buckaroo Banzai's picture

Bingo. How can you enslave the world in debt in a deflationary environment? You can't.

People think that banks prefer deflation because it causes defaults and foreclosures, which allows them to take over the underlying property. They fail to understand that bankers want SLAVES, not property.

Sat, 04/19/2014 - 17:34 | 4676068 prains
prains's picture

...and that's why "banks" need a new mandate set by the people for the people, not by the oligarchs, who all need to be put to pasture

Sat, 04/19/2014 - 17:52 | 4676107 kurt
kurt's picture

I prefer under the pasture.

Sat, 04/19/2014 - 17:30 | 4676057 samsara
samsara's picture

Bingo is right.

Sat, 04/19/2014 - 17:34 | 4676067 Caviar Emptor
Caviar Emptor's picture

Yup. Deflation kills not just banks, deflation kills creditors and those with capital which has been leveraged to generate outsized returns.

Deflation forces debts to cancel and causes DE-leveraging.

Honest work them becomes more valued than pushing paper, and the real economy would triumph over the paper economy.

Sat, 04/19/2014 - 18:37 | 4676183 NakedEconomics
NakedEconomics's picture

Yuuuuuup.  Ipso-facto -> Fractional Reserve Banking.  The real enemy.

Sat, 04/19/2014 - 21:43 | 4676468 edotabin
edotabin's picture

Hence, they are all doing their damnest to pump up house prices etc.

Sat, 04/19/2014 - 17:28 | 4676053 samsara
samsara's picture

So the goal is still "economic" growth? Don't see it for a long time.

I think the term is Overshoot. This article for example is just one.

The Age of Diminishing Returns


Sat, 04/19/2014 - 20:27 | 4676379 g speed
g speed's picture

growth is only neccesary for the payment of compounding interest--growth by definition is exponential (as is compounding interest) and therefore unsustainable. 

Sat, 04/19/2014 - 17:28 | 4676054 Caviar Emptor
Caviar Emptor's picture

Deflation does not delay purchases. if goods are more affordable then purchases rise. It's only when wages and employment spiral down along with the rest of it, then purchases are delayed.

It has been a matter of policy in the US to keep a lid on wage growth.

Sat, 04/19/2014 - 18:31 | 4676172 NakedEconomics
NakedEconomics's picture

Not quite... Deflation definitely delays some purchases.  Take an example of buying a car.  If you think the car will be $1000 less next month, you'll wait a month to see if the price drops.  If the price drops, you might wait another month more to see if it goes down further.  If it drops more, you are going to continue waiting...  This does assume you can wait, and don't need the car for other reasons...

Sat, 04/19/2014 - 20:30 | 4676382 g speed
g speed's picture

jezz ---why would anyone buy a car if they didn't need one? Everyone waits to buy a car--always---

Sat, 04/19/2014 - 22:32 | 4676522 NakedEconomics
NakedEconomics's picture

Touche... I see so many people with new cars who didn't need them - point taken. Maybe not the greatest example of an asset affected by deflationary pressure... :D 

Sat, 04/19/2014 - 17:34 | 4676066 Oreilly
Oreilly's picture

Prices that drop below the cost of production (deflationary or otherwise) drive producers out of the market (unless they're government ... then they all get performance bonuses and celebrate next years budget increase).  If deflation is orderly with growth, as in the 1800 to 1900 example, then new businesses replace the old and the general public goes about their lives seeing slowly declining prices.  If it hits as a catastrophy, in particular with the mega-capital destruction artificially produced from the after-affect of mega-propping prices up, then it may take quite some while for someone to step in to production.  And in a system that is so globally based as ours, it may be one hell of a long time before anything other than local production steps up.  Think any trucking firm is going to ship you goods if they're guaranteed to lose money on it?  Think any farmer is going to bring beef to market if he's guaranteed to lose money on it (perhaps once to liquidate, but never again).  Even mega-farms won't sell there food into national or global markets if they don't recover cost.  Not only banksters should fear deflation, but anyone who's dependent on the just-in-time distribution system should also be very afraid (or very prepared).  

Sat, 04/19/2014 - 19:49 | 4676314 daveO
daveO's picture

Our current 'rigged' market environment proves that there won't be a deflationary collapse. Loans(except student and sub prime auto) are declining, money velocity is shrinking, yet food and energy prices are soaring(these are a reflection of the FED's counterfeiting of dollars, driving up energy prices(then food follows). The inflation is being directed into 'necessities' that can't be put off. With this FED, you can rest assured that if 99% of all prices are falling then the remaining 1% will go up enough to amount to inflation on average.. 

Sat, 04/19/2014 - 17:41 | 4676079 miker
miker's picture

Deflation is not feared in an economy that has reasonable debt loads.  In an economy with massive debt loads like the US and Europe, deflation will crater the entire economy as debt defaults spiral everything down.  There is a very valid reason why the Fed is scared shitless on deflation.  They  know what the results will be with 55+ Trillion in debt on the books.

Sat, 04/19/2014 - 17:41 | 4676080 U4 eee aaa
U4 eee aaa's picture

The 1800's a VERY good time to put your money in the mattress

Sat, 04/19/2014 - 18:08 | 4676135 Save_America1st
Save_America1st's picture

I don't know about the rest of you...but when I go to the grocery store, shop online, go out to eat, look for a gas station, want to buy a car or anything else, I'm searching for as much deflation as I can possibly find.  And as far as I can tell deflation is pretty fucking elusive these days. 

Sat, 04/19/2014 - 20:03 | 4676341 AdvancingTime
AdvancingTime's picture

 After much thought I have come to the conclusion that while inflation appears tame and is not showing up in a big way the seeds have been planted, and the number of them is somewhat shocking. Inflation lurks beneath the surface and is hidden away in the dark corners of our future. Want to know where the real cost of things is going, just look at the replacement cost from recent storms and natural disasters. The article below delves deeper into some of the ways inflation hides away.

Sat, 04/19/2014 - 18:31 | 4676164 stopthejunk1
stopthejunk1's picture

This article is so silly it's almost not worth responding to: where to begin?  But just to take a couple of the more profoundly silly spasms:


"They cannot entirely be trusted – assuming that markets ever can."

So markets are never trustworthy; yet you want them to be unregulated?  lol?


"In the present crisis, the citizens... have to make an important choice."

Utterly naive hogwash.  There is no choice, and there never has been.  There is nothing democratic whatsoever about geopolitics or economic organization.  You may as well "support" a particular direction for evolution or the weather.  Do not confuse your privilege to say what you think or vote for this or that loudmouth with the entirely different idea that someone cares what you think, or that what you think or who you support has any effect on the outcome.


As if our choices in monetary policy were somehow unrelated to the specifics of our economic organization.  As if somehow the specifics of our economic organization have not changed in 200 years.  As if somehow, things never change, so that all one needs to do in order to refute a major economic theory is point to some distant historical period where the rules were different, so that the theory in question would not apply, and then conclude that it also does not apply now.

I would go further, except it seems unnecessary and unkind.  I wonder sometimes, is there a way to distinguish the kind of person that believes this kind of tripe sincerely, versus the commentators that have some ulterior motive and are merely being disingenuous?  Because if the writer believes what he wrote, then he has no ability to think whatsoever.  

Sat, 04/19/2014 - 20:08 | 4676241 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

Which major economic theory has the FED used over the last 100 years to successfully predict any of the bubbles, depressions, or reccessions?

There is no major economic theory other than a select and special group of financial terrorists which use the fiat system to destroy human beings lives by making them slaves to a system of corruption.

Fuck the FED and economists. Their only purpose is steal from others while they prosper.

Sat, 04/19/2014 - 21:14 | 4676430 Vooter
Vooter's picture

Get on the fucking train, swine...

Sat, 04/19/2014 - 18:39 | 4676184 GreatUncle
GreatUncle's picture

This artificially induced inflation 2% YOY by central banks never took into account those people who unable to obtain an asset saw there net worth devaluing far faster with NO COMPENSATION. If this group ever figure out what has been done too them then do expect carnage.

No asset = no financiaL compensation for central banker actions of creating inflation.

On that point ... is it wrong to wish harm to central bankers? I think not ....

Kind of obvious also under such a mechanism why the rich get richer and the poor become destitute and fall into poverty.

So is poverty then created by the bankers? It sure looks like it and a decent bout of deflation with central bankers jailed can reverse some of this process.



Sat, 04/19/2014 - 20:13 | 4676353 daveO
daveO's picture

The bankers' plan, in the past, was to create a war to 'flush' the poor down the drain when they get too expensive to carry. 

Sat, 04/19/2014 - 18:57 | 4676215 CHX
CHX's picture

The 99% live better with deflation, but not the 1%. Therefore, it's a non-go.

Sat, 04/19/2014 - 19:29 | 4676279 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

If any of your supposed wealth is in the form of pixels on a computer screen good luck!!!!!!!



Sat, 04/19/2014 - 19:54 | 4676328 AdvancingTime
AdvancingTime's picture

 Never before has mankind diverted such a large percentage of wealth into intangible products or goods.  I contend this is the primary reason that inflation has not become a major economic issue. The modern economy that has evolved over the last several decades is loaded with interwoven contracts reeking of contagion. If faith drops in these intangible "promises" and money suddenly flows into tangible goods seeking a safe haven inflation will soar. Like many people I worry about the massive debt being accumulated by governments and the rate that central banks have expanded the money supply.

The timetable on which events unfold is often quite uneven and this supports the possibility of an inflation scenario. A key issue being one of timing. If the price of gas jumps to $8 a gallon overnight do you buy gas and not make your car payment or stop driving the twenty miles to work? Answer, it could be months before your car is repossessed so you buy gas. It is important to remember that debts can go unpaid and promises be left unfilled. More on how we have sowed the seeds for inflation to suddenly strike in the article below.

Sat, 04/19/2014 - 20:20 | 4676367 Yen Cross
Yen Cross's picture

  I'm not in the mood to read. I'll go with the old "'tried- and-true', fuck you > ya bunch of Jekyll Island inbreds!"

Sat, 04/19/2014 - 20:24 | 4676373 Seasmoke
Seasmoke's picture

Life is all about timing. 

Sat, 04/19/2014 - 21:43 | 4676467 TeraByte
TeraByte's picture

You only need to look at the financial sector´s steady increase of nations´ GNPs, why deflation is its mortal enemy number one. Yet the sector´s intrinsic positive contribution to growth comes from the same old service basically, which has just grown more expensive. In that regard Hulsman hits the right note, but believing in anarchy as a solution is dangerous.  Anarchy always ends up to a mob rule, one variation of which we again have to endure now. Our mobsters are politicians created by democracy´s decline and the financial oligarchy, who greedy psychopaths hold the power unopposed . Only in an ideal world totally unregulated markets optimise the outcome by voluntary agreements between "free equal men", but show me a place in this world, where men are this equal partners. The slave trade was a caricature of this slumber land doctrine. In this case some groups of men decided fortunes could be made by unregulated contracts between sellers, buyers and subjects. Bingo the scheme was optimized by silencing the majority 15 M of previously free man by brute force, because there were no strong societies enough to stop the villains. Similarly the European banking was born from wealthy merchants´ greed and supported by weapons and bankers had and still have enormous influence in politics by financing also others´ wars, because sovereigns always spend more than they can steal. To unregulate the existing market entirely without first dismantling  the worst distortions and believe the market suddenly turns into a level plain field is not only insane, but could even worsen an outcome for the majority. There is no easy solution, but you have to retain some kind of democratic control, but how, that´s the very question, when the supposed controllers are mobsters too.

Sat, 04/19/2014 - 22:28 | 4676513 Oscar Mayer
Oscar Mayer's picture

Clearly the author doesn't know his ass from a hole in the ground.  We, All of Westernized Civilization, do not operate on a Paper Based Currency System, it is a Credit Based Currency System, in fact 98% of the global 'money' supply is Credit Based.  You want to understand the Great Depression of the 1930's, it's simple, it was a cascading collapse of credit as currency.  You want to know why they fight deflation, it's simple, they are attempting to mitigate another cascading collapse of credit as currency on a global scale.  You know, like the one that took out Iceland, Ireland, Portugal, Spain, Greece.  And let's not forget the over $40 Trillion of credit as currency that POOF!ed out of existence in 2008, leaving nothing behind but the DEBT.  Blind people making blind obsevations, open your fuking eyes.

Sat, 04/19/2014 - 23:41 | 4676610 Hongcha
Hongcha's picture

Serious question here ... what if you have say $250k cash, in the bank or a CD.  That's too much to drop through the slats or stuff into a pillowcase.  You think RE and stock markets are in a bubble and you just want the fucking cash held thank you.  Do you keep it in a few accounts and HOPE you don't get bailed-in?  What is the alternative?

Sun, 04/20/2014 - 00:14 | 4676646 Oscar Mayer
Oscar Mayer's picture

Take your cash, buy gold and silver coin with half.

Sun, 04/20/2014 - 00:08 | 4676642 Seek_Truth
Seek_Truth's picture

Reject the basic assumptions of civilization, especially the importance of material possessions.

Sun, 04/20/2014 - 03:13 | 4676741 The Abstraction...
The Abstraction of Justice's picture

Does that include the computer you typed your comment into? You first.

Sun, 04/20/2014 - 08:47 | 4676895 FredFlintstone
FredFlintstone's picture

Let him be, like you he is squatting in a mud hut wearing a loin cloth. His progeny is pedaling a generator.

Sun, 04/20/2014 - 06:36 | 4676815 smacker
smacker's picture

The arguments against fear of deflation are strong. And it is clear that central banks, political mouthpieces and the swarms of parasitical economists who suck at the teat of government who peddle fear do so for purely parochial reasons. Mainly because sovereign governments are the biggest debtors and the idea of their massive debts not being eroded by steady inflation is unnacceptable to them. Hell, they might have to stop borrowing & spending and live within their means. What then for all their promises of jam today and ever more monuments to big government?

However, before one wipes away the fear of deflation as this article tries to do, it is necessary to quantify the consequences of doing it. The effect on wages, pension, private borrowers (eg mortgage holders etc), welfare payments and a whole lot more all have to be identified and considered.

This article fails to do that and is itself rather parochial.

Sun, 04/20/2014 - 09:37 | 4676991 Oscar Mayer
Oscar Mayer's picture

There would be nothing left to consider, just starvation, death and a government with an army intent upon recouping its losses.

Sun, 04/20/2014 - 15:04 | 4677644 zyo
zyo's picture

What's wrong with delay purchase?

A strong economy is not about stupid decisive purchase that put you more in dept. It's about productivity and living standard.

Electronique price drop every year... since they exist and guess what people line up to buy the new iPad.

I would not worry about people spending they money if they have more because they don't get ripped off by inflation years after years.

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