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Blaming Deflation

Tyler Durden's picture


Submitted by Alasdair Macleod of,

With the Eurozone going to the extreme of negative interest rates and the IMF belatedly revising downwards their expectations of US economic growth, deflation is now the favored buzzword. It is time to untangle myth from reality and put deflation in context.

Keynesian and monetarist economists commonly use the word to describe the phenomenon of falling prices, or alternatively a rising value for money. Deflation is loosely meant to be the opposite of inflation. But the term inflation originally applied to an increase in the quantities of currency and credit, not to the rise in prices that can be expected to follow. The definition has drifted from cause to supposed effect. Taking its cue from this transfer of definition, deflation is now taken to describe falling prices, usually linked to failing demand, and not a contraction of money in circulation.

Keynes decided that falling prices discourage consumers because they are likely to defer their purchases. He also argued in his Tract on Monetary Reform that deflation benefited the rentier class at the expense of the borrower, calling to mind an image of the idle rich enjoying a windfall at the expense of the hard-working poor. Keynes and his followers subsequently developed this argument against falling prices to justify government intervention as the remedy. No recognition was given to the normal process where stable money leads to lower prices, the hallmark of genuine economic progress. Sound money became tarred with the deflationary brush and ruled out as a desirable objective.

The deflation problem according to another economist, Irving Fisher, is that the losses suffered by businesses from falling prices can lead to collateral being liquidated by the banks, feeding into a debt-liquidation spiral and ultimately banking failure. Fisher was describing the natural response of banks to a widespread slump, and not the normal course of business in a sound money environment.

However, while swallowing Keynes' and Fisher's arguments central bankers are ignoring the law of the markets, commonly referred to as Say's Law. It states that we make things to buy things so you cannot divorce consumption from production, and money is just the temporary lubricant for the process. Tinkering with monetary value solves nothing. This was the accepted wisdom before Keynes turned it on its head in the 1930s. Today governments and central banks think they can do better than markets by monetary intervention and state direction. The result is businesses that should fail are supported and uneconomic activities promoted. And when this support operation shows signs of collapsing, we are told it is deflation.

If the word has any meaning, it is nothing of the sort: markets are merely trying to embrace reality and cleanse themselves of the accumulated distortions. The fact that this cleansing process has been suspended, at least since the Reagan/Thatcher era of the early 1980s, warns us that the accumulation of distortions is great; so great that when they are corrected Irving Fisher's warning about slumps will be proven to be correct.

The marker of course is the accumulation of debt, which strangles everything. My conclusion is that use of the term deflation is passing off the accumulating problems created by government and monetary interventions as the failure of markets.


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Sat, 06/21/2014 - 13:29 | 4880729 Skateboarder
Skateboarder's picture

Want 'change?' Hang an 'expert.'

Sat, 06/21/2014 - 13:40 | 4880731 svayambhu108
svayambhu108's picture

OT: Great piece on Saudis and terrorist sponsoring

Sat, 06/21/2014 - 14:01 | 4880790 Urban Redneck
Urban Redneck's picture

Overly simplistic... The Saudi's are playing with fire but they know it and the risks that this does create. The error in the piece is viewing the Saudi establishment as monolithic, when there are inter-clan rivalries for power, succession, and a bigger slice of pie.

Sat, 06/21/2014 - 14:05 | 4880800 nope-1004
nope-1004's picture

We need a third variable to this debate.


The three are: Inflation, or Deflation, or Corruption.

Then it would be easy to classify this gong economy.

Sat, 06/21/2014 - 14:25 | 4880842 hidingfromhelis
hidingfromhelis's picture

Reminds me of the quick, accurate, and cheap scenario where you get to pick two.

Sat, 06/21/2014 - 18:00 | 4881261 Stoploss
Stoploss's picture

Deflation and inflation are fiat terms used, and thrown around for purposes of instilling fear, while they rob you, by relentlessly reducing the said fiat value.

In the fiat price arena, there are only high prices, and low prices. The cure for high prices, is high prices. The cure for low prices, are low prices.


If you get the motherfucking FED out of the way, COMPETITIVE RATES do a lot to control those price swings, and along with non interventionist monetary policy, it might leave those stupid fukkers an opportunity to actually, for once, actually do what they told us it was going to do when they lied to us the first time.


The FED was created to finance the WAR RACKET.

That is all.......

Sat, 06/21/2014 - 13:32 | 4880730 deflator
deflator's picture

 Governments and central banks are not Keynesians any more than they are Austrians. They are whatever is politically expediant to justify maintaining and growing their power.


 Yes deflation is their threat but inflation is their promise.

Sat, 06/21/2014 - 17:23 | 4881200 Greenskeeper_Carl
Greenskeeper_Carl's picture

What always kills me is how you can do a little research and find a huge number of societies who have crumbled due to the inflation of currencies, and printing of money, this destroying it's purchasing power. What you won't find is a society that collapsed due to the purchasing power of its citizens growing too much. The only people who this benefits are indebted govts and their central banks. And you never hear anyone mention this.

Sat, 06/21/2014 - 18:00 | 4881259 deflator
deflator's picture

 We all know what inflation and deflation is in the context of sound money, how there can be an inflation/deflation debate in the context of fiat money is beyond me. Inflation is the law in a fiat currency system. Deflation in a fiat context is for those without the power to create money by decree.

Sun, 06/22/2014 - 05:36 | 4882260 jonytk
jonytk's picture

so the euro states...

Sat, 06/21/2014 - 13:31 | 4880734 Flakmeister
Flakmeister's picture

Peak oil is a powerful deflationary force, more and more capital is sucked into the energy vortex for increasingly less return...

$3.5 trillion since 2005 and they couldn't even keep production flat... 

Sat, 06/21/2014 - 13:41 | 4880750 headhunt
headhunt's picture

It's a black hole and when you get too close eventually you are sucked in.


Sat, 06/21/2014 - 14:02 | 4880785 CrashisOptimistic
CrashisOptimistic's picture

Yes my comment was gonna be "in a world of scarcity of that which is vital, price need not be informative". 

The first layer of thought would be . . . if you have to have it, you'll pay any price so the price can increase. 

The second layer is if you have to have it, and you can't get it, your activity will decline. 

So supply and demand is not a "LAW".  In fact, there are no laws of economics.  It's an invented discipline of some imagined universal behavior. 

Generally, ignore it, and seek farmland.

Sat, 06/21/2014 - 14:40 | 4880872 TuPhat
TuPhat's picture

Generally ignore Flakmeister and read wiser comments.  He's got it so backwards as usual.

Sat, 06/21/2014 - 14:49 | 4880892 CrashisOptimistic
CrashisOptimistic's picture

Uhm, I was somewhat agreeing with him.

Sat, 06/21/2014 - 18:34 | 4880926 deflator
deflator's picture

"Peak oil is a powerful deflationary force, more and more capital is sucked into the energy vortex for increasingly less return..."

 but they have maintained the illusion of more return...or has all your arguments with, "cornucopians" been in vain?


 Even if there is, "plenty of oil" doesn't mean that there is "capacity for growth" in producing crude oil, coal and natural gas. The past 150 years of parabolic lower left to upper right on the charts of energy production and technology that consumes it is IMO at least partly responsible for legitimizing strictly fiat money. You don't have to believe in PO to conclude that at some point production numbers can eventually get too big to extrapolate the lower left to upper right any further into the future. 


 People always ask me, "What do you mean capacity for growth?". In a debt based fiat currency system you don't have to run out of something, you just need to run out of capacity for growth in producing that something. If you can't extrapolate growth in production then debt money fails. Even if production is flat a debt based system has major problems.

Confidence that the past 150 years of lower left to upper right on the chart production of energy is confidence in lower left to upper right debt production.


 Now if we believe that economics is political bullshit in the context of fiat money world then we can see that all the talk of energy renaissance is there to soothe us and tell us, "don't worry, the debt is still all good."

Sun, 06/22/2014 - 09:07 | 4882414 Peanut Butter E...
Peanut Butter Engineer's picture

That sounds like inflation

Sat, 06/21/2014 - 13:33 | 4880737 Cognitive Dissonance
Cognitive Dissonance's picture

Control the language and you control the mind. The body soon obediently follows.

Sat, 06/21/2014 - 14:13 | 4880816 pakled
pakled's picture

Whe you got 'em by the mind....

Sat, 06/21/2014 - 13:34 | 4880738 A Lunatic
A Lunatic's picture

End the FED.......

Sat, 06/21/2014 - 15:13 | 4880930 RaceToTheBottom
RaceToTheBottom's picture

I keep getting email notification of sex offenders moving into my neighborhood.  Part of an effort to keep citizens informed and thereby empowered.


I think it is more important to send these emails about the latest FED governors...  They have a higher probability of molesting your kids.

Sun, 06/22/2014 - 09:07 | 4882415 Peanut Butter E...
Peanut Butter Engineer's picture

FED the END.

Sat, 06/21/2014 - 13:34 | 4880740 Seasmoke
Seasmoke's picture

I think it's WAY PAST time to check the deflation myth. 

Sat, 06/21/2014 - 13:40 | 4880752 rbg81
rbg81's picture

I have yet to see deflation except in the real estate market every now and then.  However, I DO see inflation on a daily basis.

Sat, 06/21/2014 - 14:24 | 4880838 Cognitive Dissonance
Cognitive Dissonance's picture

You're doing it wrong. Look only in the places you are told and no where else. How many times must I explain this to you? Sheesh!

Sat, 06/21/2014 - 15:20 | 4880957 moneybots
moneybots's picture

"I think it's WAY PAST time to check the deflation myth."


Deflation isn't a myth.  It is the inverse phase of the inflation/deflation cycle.

100% of financial bubbles burst and deflate. Math does not allow any exceptions.

Sun, 06/22/2014 - 00:11 | 4881975 Flakmeister
Flakmeister's picture

And not all types of deflation lead to failing prices, cost push inflation can certainly occur during a period of declining output...

Sat, 06/21/2014 - 13:36 | 4880742 Tulpa
Tulpa's picture

"Today governments and central banks think they can do better than markets by monetary intervention and state direction."

Some/most of them don't actually believe they can do better, they just enjoy having extra power over the economy.

Sat, 06/21/2014 - 13:38 | 4880745 headhunt
headhunt's picture

The fact is the laws of physics apply to all things including economics.

The master of the universe is gravity - it always, always wins.


Sat, 06/21/2014 - 13:42 | 4880756 Skateboarder
Skateboarder's picture

Actually the Strong Interaction fourth wins by a whopping 38 orders of magnitude. ;-)

Sat, 06/21/2014 - 13:56 | 4880780 Bollixed
Bollixed's picture

For some reason I had a lisp when I read that...:)

Sat, 06/21/2014 - 14:08 | 4880805 Skateboarder
Skateboarder's picture

Just having fun with words. ;-)

Sat, 06/21/2014 - 14:03 | 4880795 Flakmeister
Flakmeister's picture

Yeah but very short ranged and its asymptotically free.... 


Sat, 06/21/2014 - 14:24 | 4880839 logicalman
logicalman's picture

Very short range, however.

The effects of gravity however are infinite in range and always additive.

I think gravity wins, maybe it's dark matter, though I'm still on the fence with the dark matter thing until there's more evidence.


Sat, 06/21/2014 - 14:54 | 4880902 Skateboarder
Skateboarder's picture

Quick summary of my take on 'dark matter':

- Any mathematical computation may require three-dimensional space for physical storage of information. It may be that all higher order computations have base cases in the three-dimensional space.

- If you have a computation active, it requires computational overhead (space) for the computation to be carried out.

- We perceive the active computation as 'regular matter' and the inactive, or overhead space, as 'dark matter.'

- Atomic computations may not necessarily require the concept of time, but sustained sequences of atomic computations that require the notion of a continuing state, do require the concept of time.

- 'Dark Matter' is like cigarette ash left behind by the ever-burning-computation-machine cigarette we call 'The Universe.' It is indeed matter, but it's spent. There are likely many uses for it which we do not yet comprehend.

Sat, 06/21/2014 - 15:51 | 4881020 NickVegas
NickVegas's picture

Here is my take on 'dark matter'. None of the ivory tower academics equations and theories match actual observation, so they made up this fairy tale that there is this fungible unobservable stuff that fixes everything with their theories. Most important of all is to keep the funding coming, and make sure we don't get any closer to Tesla style free energy as we pursue the unicorns and fairies in space.

Sat, 06/21/2014 - 23:50 | 4881936 Flakmeister
Flakmeister's picture

This is Hedgetardery in perhaps its most classic form...

i) Gross misunderstanding of a scientific issue,

ii) Implies basic research is a waste of money,

iii) Gratuitous reference to "conspiracy theory involving Tesla"....

Sat, 06/21/2014 - 16:27 | 4881100 NidStyles
NidStyles's picture

Here's the explanation for dark matter. Humans watch the sky for a few decades and immediately assume they have an idea what is going on despite lacking enough information to verify. 


Sounds like everything that is actually wrong in the world is involved with everything else humans do, it lacks foresight and verification.

Sat, 06/21/2014 - 17:10 | 4881180 Skateboarder
Skateboarder's picture

Attempt to follow the logic that I presented. It's not extraordinary or magical. There are things we will never know, but it is not impossible to conclude the bounds of unseeable things through logical means. Yeah, the 'scientists' are/can be circle-jerking arrogant assholes, and you may discount them by discretion, but don't discount individual contributions of logic from 'non-scientists' out of the assumption that they don't know jack shit. They might not, but logic constructs have a neat way of bringing absurdity into order, and all people have all shapes, sizes, and varying degrees of quality/soundness of logic constructs to offer. It is your responsibility to decode that accordingly.

Now, knowing that probability spaces have members, and members have complements, and 'visible matter' as a member of the universe's space most certainly has a complement, I logically conclude with good confidence that 'invisble (dark) matter' exists. What that invisible matter actually might be, I presented in my previous post.

Since when did hypotheses about the unknown become taboo?

Sun, 06/22/2014 - 00:41 | 4881955 Flakmeister
Flakmeister's picture

It is never taboo, but your idea must be *testable* at some level, i.e. consistent with all known data. All Dark Matter is 
"stuff" that interacts gravitationally but not electromagnetically. This is known by two independent means.

Powerful constraints on any DM theory include the primordial abundances of various elements and isotopes from Big Bang Nucleosyntheis. We know the production propabilities, and prevailing conditions must be just so...

We also have incredible maps of the Cosmic Microwave Background Radiation. We know how smooth the universe has to be at different angular scales.

Edit: Here is the latest data

Sun, 06/22/2014 - 02:38 | 4882152 NidStyles
NidStyles's picture

Not taboo in the least. If it's complete nonsense and the testing proves that it's not 100% accurate it not really something that should be trsuted and worked further upon. 


General Relativity is pretty good with localities, it's miserable once you start trying to explain where everything came from. They had to come up with a replacement to Aether to make General Relativity to "work". 

Sun, 06/22/2014 - 10:07 | 4882496 Flakmeister
Flakmeister's picture

Why do you feel compelled to pollute the boards with your gross misunderstanding of damn well near everything?

What the fuck does the above dribble supposed to mean?

So, just what replaces the Aether then? We are all ears....

(not really)....

Sun, 06/22/2014 - 00:14 | 4881979 Flakmeister
Flakmeister's picture

Nid, you might very well be the Hedgetard with the strongest case of Dunning Kruger ever observed here...

Sun, 06/22/2014 - 02:42 | 4882148 NidStyles
NidStyles's picture

Well it beats being the biggest dick head on here. :-)  Even if it is not true.

You're also the one that accepts General Relativity and the Big Bang even though everyone in the field know's that they are both flawed but they keep working on it as they are getting paid to do that sort of research. Say all you want Flak, everyone in the field admits this to be true. 

Magical patchwork theories that can not be tested do not make for an accurate picture of reality. 

Sun, 06/22/2014 - 09:46 | 4882499 Flakmeister
Flakmeister's picture

Wow, a post that is almost coherent...

Completely fucking wrong, but at least it is coherent, and I suppose that is a start...

Sat, 06/21/2014 - 14:28 | 4880826 pakled
pakled's picture

Funny you are getting down voted. I was looking for a way to say something similar. A bit more to it than just what goes up must come down, but everything seems to flow from a few basic "laws" (or constructs). Perhaps this is why we inadvertently create new problems as we attempt to solve existing problems. And I guess you can divide the world between the people that understand that (vision, experience, wisdom) and the ones who don't. The so-called 'bleeding heart liberal' is certainly well intended, but they might not realize that not all problems can be solved. We often make it worse by attempting to fix it.

Sat, 06/21/2014 - 15:53 | 4881025 lunaticfringe
lunaticfringe's picture

“Most of the harm in the world is done by good people, and not by accident, lapse, or omission. It is the result of their deliberate actions, long persevered in, which they hold to be motivated by high ideals toward virtuous ends.”
? Isabel Paterson, The God of the Machine

Sat, 06/21/2014 - 16:55 | 4881148 Anusocracy
Anusocracy's picture

Private morality fails to create public good when it is applied through coercion.

Sat, 06/21/2014 - 14:24 | 4880840 logicalman
logicalman's picture

Entropy is a pretty big deal too.

Sat, 06/21/2014 - 14:43 | 4880875 KickIce
KickIce's picture

But I think it's Wile E Coyote physics, we just have to get the SOBs to look down.

Sat, 06/21/2014 - 14:53 | 4880901 CrashisOptimistic
CrashisOptimistic's picture

I often argue this point.

All . . . no, many of the peak oil folks get loud because they have this underlying perspective that if they can raise consciousness, they can change behavior of society, avoid disaster and be heroes.

I sneer.  Inevitable is inevitable.  Pretending otherwise is optimistic delusion -- and check that out, I called peak oil folks optimists.

Sat, 06/21/2014 - 15:18 | 4880953 KickIce
KickIce's picture

Once off the gold standard there is no concrete measurement, it's all relative strength one fiat against another otherwise we'd have gone the way of the Weimar Republic long ago.

Sun, 06/22/2014 - 00:08 | 4881964 Flakmeister
Flakmeister's picture

The only real measure is in BTU, ergs, dekatherms or joules....

In fact since the beginning of open trading oil, the data strongly suggests that gold has been deflating againt oil.... 

Sat, 06/21/2014 - 16:44 | 4881126 NidStyles
NidStyles's picture

Which is exactly why I stick to the let it happen side of the debate. Nature will pick a winner without our interference.

Sat, 06/21/2014 - 17:00 | 4881159 Anusocracy
Anusocracy's picture

Man has one foot in the animal world and one foot on a banana peel.

Sat, 06/21/2014 - 13:44 | 4880758 Atomizer
Atomizer's picture

What's your hesitation in jump starting the EU version of Federal Reserve? Cunt rags caught in a painted corner 

Sat, 06/21/2014 - 13:50 | 4880771 nickels
nickels's picture

Government is not about governing. It's about generating a massive slush fund which can be absorbed by the military-industrial parasites which manage the system by maintaining the divide and conquer selection of candidates that we get to "choose" from.

Sat, 06/21/2014 - 14:32 | 4880857 The Most Intere...
The Most Interesting Frog in the World's picture

At some point the establishment Republican and Democratic parties got together and agreed that they could make a lot more money working together than fighting each other. Yes, they still put out there own candidates and things may look nasty on the outside but behind the scenes they work together to advance their industry, politics. They coordinate attacks on independents, third parties and rogue members of their own party. Protecting their stranglehold on the money politics brings is paramount to rather silly and menial issues debated on a daily basis.

Sat, 06/21/2014 - 13:51 | 4880777 KickIce
KickIce's picture

If you are benefiting from the bailouts it probably feels like deflation, those that aren't feel like they are being dragged naked over hot coals and then having alcohol poured over them.

Sat, 06/21/2014 - 14:10 | 4880809 ejmoosa
ejmoosa's picture

If deflation was such a bad thing, there would be no reason for busineses to offer sales.


After all, seeing that lower sales price will encourage buyers to wait, right?

Sat, 06/21/2014 - 14:10 | 4880811 buyingsterling
buyingsterling's picture

Good piece

Sat, 06/21/2014 - 14:20 | 4880832 Bluntly Put
Bluntly Put's picture

The marker of course is the accumulation of debt, which strangles everything. My conclusion is that use of the term deflation is passing off the accumulating problems created by government and monetary interventions as the failure of markets.

Exactly, well put the debt generated by fiat currency is like toxic waste to the energy industry.

Sat, 06/21/2014 - 14:40 | 4880869 Danno Anderson
Danno Anderson's picture

Deflation in just one sentence.   When the 17 trillion dollar US debt bomb explodes there will be a huge contraction in the money supply and 'deflation.' 


  Amerika continues to consume more than it producers due to free trade (Clinton's NAFTA) resulting in a trade deficit.  Thus unemployeed Amerikans are becoming poorer with the US government trying to ameliorate the situation via food stamps and much more.   

Sat, 06/21/2014 - 15:41 | 4881003 orez65
orez65's picture

"Amerika continues to consume more than it producers due to free trade ..."


America continues to consume more than it produces due to American Fiat Money, i.e. US Dollars.

"Real Money", i.e. gold or silver will make you honest. 

Sat, 06/21/2014 - 14:40 | 4880873 bugs_
bugs_'s picture

stay very out of the way when the market prepares to "cleanse itself" in your direction.

Sat, 06/21/2014 - 14:45 | 4880880 PoliticalRefuge...
PoliticalRefugeefromCalif.'s picture

So where is the new fiat that inflationary dogma always requires? all I see is the issuance of new debt- looks more like stagflation to me.

Prices on necessities increase, prices on non essential expenditures decrease in an arena of shrinking velocity culminating in abnormal business failure and ensuing shortages.

Commodities like beef and grain have been impacted more by weather and foolish government mandates than anything else, housing and durables by government meddling- metals entirely by banking interests.

more to come.

Sat, 06/21/2014 - 14:45 | 4880881 No Quarter
No Quarter's picture

Similar to another thread from yesterday or today, its retarded to think there is even a conversation about inflation. There is the obvious stuff you buy (food/fuel/utilities) but since 2012 alone, we have seen roughly a 15-20% increase in parts pricing as well as shipping cost increases. Go farther back, 2001 -2004, and the percentages are higher..

Sat, 06/21/2014 - 14:54 | 4880882 Manipuflation
Manipuflation's picture

I feel deflated.  I made the mistake of turning on the TV for about 30 seconds before I turned it off.  Let's try to contain our exuberation over the universe shaking and changing World Cup.  90 minutes of guys running around kicking a dead goatskin back and forth, never scoring, on an otherwise good piece of turfgrass that could just as well be turned into a productive vegetable garden.

That said, we have our own wastes of time that are unique to Merica notwithstanding.  Yes, we all know it is bread and circus.  And how many of us are sports weary now with CONgressional investigations into professional sports figures?  Is that what we "elected" them to do?  What the fuck is this latest waste of time

Government should not be involved in sports at all but think about it, the .gov is involved in one facet or another over over every aspect of sports that you can think of.  There is lot to be pissed off about with such taxpayer funding for stadiums that supposedly "Create" jobz.  I am not buying this story.  Look at the graft in Sochi!  Look at it right here at home!

NO!  No one really needs this bullshit.  The media keeps telling us that we need to care about some fucking sport or another.  NO, WE DON'T NEED TO CARE about some sports team that we couldn't even afford to go see if we wanted to.  If a community wanted to get together and make a small field for kids to play than that is fine.  A volunteer work type of thing.  I have no problem with that at all but to get the .govs of the world all involved and further impermeating themselves in our lives and business is beyond reprehensible.

There is no inflation is what we are told.  We need to spend MOAR fiats on stadiums to ward off deflation.  This is basically where we are at now.  The list goes on and on as you all know.  Since we already know about so many of the legally enforcable rip-off scams such as the Fed and our politcal system as it is, what have you seen that really is a rip-off and an abuse?  Let us make a list right here on this thread.  That will give the NSA something to read for the day.

I will start the list:  Legal tender laws.  In the US it is this specifically.    

Sat, 06/21/2014 - 14:48 | 4880887 moneybots
moneybots's picture

"Tinkering with monetary value solves nothing"


A manipulated market will manipulate back.  The law of unintended consequences.

Sat, 06/21/2014 - 21:04 | 4880911 ToNYC
ToNYC's picture

Deflation is the fruit of the Productivity tree; good decisions that paid off in over-production by ideas, tools, or processes. Inflation is the reverse, the friction and result of poor decisions.


Sat, 06/21/2014 - 15:05 | 4880919 moneybots
moneybots's picture

"The deflation problem according to another economist, Irving Fisher, is that the losses suffered by businesses from falling prices can lead to collateral being liquidated by the banks, feeding into a debt-liquidation spiral and ultimately banking failure."


There is no deflation problem.  There is an inflation problem.  The horse pulls the cart.  Inflation causes deflation.  No bubble has deflated until after it was inflated.  Inflate a bubble, it is guaranteed to burst and deflate.  The FED keeps building a BIGGER debt bubble to deflate.

Everyone talks about the FED printing, but the DEBT BUBBLE keeps growing, not shrinking, as a result of the printing.  The hole is getting deepeer, not being filled in.

Sat, 06/21/2014 - 15:10 | 4880928 moneybots
moneybots's picture

"Keynes decided that falling prices discourage consumers because they are likely to defer their purchases."


It was nice of Keynes to decide that, without actually asking consumers.

Sat, 06/21/2014 - 17:23 | 4881123 falak pema
falak pema's picture

you've never known the great depression caused then by the great private sector bubble of 1929 in irrational exuberance. 

So your trite remark is divorced from reality of the 30s when Keynes propounded what he did to prime the pump using the ONLY means available : demand stimulation based on government spending as supply side was stone dead; the banks had cut off the lending spigot and unemployment was killing the people.

Theory always is propounded to solve reality's pains; especially dystopian reality created by the greedy. 

That should ring a bell today. And Piketty is ringing it in the economic domain.

The debate about whether oil scarcity is creating deflation or inflation is irrelevant (once we are beyond the reset period). Our model is based on consumption of the unnecessary. We are a civilization of waste based on the premise materials are infinite and abundant.

That premise is now false. The rest follows.

The whole paradigm of civilization is skewed and price function is artificial when WS assets nominally are burning hot representing the prime measure of riches of the past paradigm whereas water availability and land to produce food will be the parameters of tomorrow's paradigm. Our value systems must change before our price mechanism can reflect what is real and what is irrelevant. 

The key parameter for past and future paradigms stays availability of energy in a transmittable and storable form. But the big change will be to really move away from the industrial age to the post industrial age; not by outsourcing it to slave labour locations; but by changing the nature of the game before nature changes the environment beyond human game theory and practice and the world morphs beyond our reach. 'Cos that means homo sapiens become something else. 

Sun, 06/22/2014 - 18:23 | 4883826 RichardParker
RichardParker's picture

"By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens."


Sat, 06/21/2014 - 17:15 | 4881127 Frilton Miedman
Frilton Miedman's picture





Inflation/deflation is no longer the economic measure it once was.

With the removal of Glass-Steagall and the creation of the CFMA -Inflation is an area where traditional economics cannot be applied, commodity and energy futures are now under the absolute control of TBTF's and large trading entities.

(Also worth noting, removing Glass-Steagall & the CFMA would be along the lines of "free market" deregulation, so Austrians & classic liberals aren't vindicated here either)

This was proven in 2008, when oil prices were manipulated to $145 for the purpose of inducing the onslaught of CDO defaults via suppressed disposable incomes so TBTF's could collect on their MBS short positions. (in retrospect, it looks like Dick Fuld got punked by the banskter cabal)

Because of instability in commodity and energy futures prices, largely caused by the CFMA non regulation of position sizes, the consumer becomes more paralized, afraid to spend disposable income for fear RBOB might get to $5, or food might continue climbing.

If you look at oil prices, global supply, demand and proven reserves since the late 90's, there is absolutely NO reason for RBOB to be this high, the only explanation for the prolonged price surge in 1999 from the $1 to $2 range to a $3 to $4 range is futures manipulation.

Exxon CEO Rex Tillerson confirmed this in testimony to Congress (whom is owned by Wall St and will do nothing about it).

From there, there's no reason not to suspect the same manipulation doesn't occur in every other commodity future.

Using inflation/deflation as a market barometer in the post CFMA/Glass-Steagall era, when we know commodity futures are manipulated, is tantamount to treating an ulcer sufferer for cancer because you can't diagnose the patient.

We have to get CFTC position limits implemented at the very least, until then, there is no way to determine whether inflation/deflation is real or speculative.

To now, CFTC position limits have been stalled by the banking lobby, they were supposed to be in place years ago.




Sat, 06/21/2014 - 16:56 | 4881150 Goldilocks
Goldilocks's picture

The Squeeze is On! Alasdair Macleod Explains Why “Gold & Silver Are Going to Run Very, Very Quickly!” (mp3)(47:42)

The Squeeze is On! Alasdair Macleod: "GOLD & SILVER ARE GOING TO RUN VERY, VERY QUICKLY!" (48:35)

Sat, 06/21/2014 - 17:23 | 4881202 honestann
honestann's picture


Sat, 06/21/2014 - 17:55 | 4881249 The Abstraction...
The Abstraction of Justice's picture

The whole point of the essay is that deflation means bad debt, the destruction of debt assets, not falling prices.

Sun, 06/22/2014 - 00:22 | 4881997 Serenity Now
Serenity Now's picture

Let me sum up this article:

Inflation = Increase in the money supply (M)

Deflation = Decrease in the money supply (M)

All things being equal, if M goes up, then Demand goes up, then Price goes up.

All things being equal, if M goes down, then Demand goes down, then Price goes down.

Like night follows day.

Most of you refuse to believe this.  You say Inflation when you mean Price Increase.  They aren't the same.  You say Deflation when you mean Price Decrease.  They aren't the same.

Take the words Inflation and Deflation out of your vocabulary, and say what you mean.  You will change the way you think about economics.  Because not all Price changes are due to Inflation or Deflation.  

Sun, 06/22/2014 - 11:44 | 4882416 smacker
smacker's picture

Since price inflation and price deflation can and do happen, it is better simply to retain these words in one's vocabulary but always be sure to use them correctly. Not to muddle price inflation with an increase in the money supply, because they're two different things and one can increase without the other.

Mon, 06/23/2014 - 06:14 | 4884860 Serenity Now
Serenity Now's picture

Why don't you just say price increase and price decrease?  Leave the words inflation and deflation alone.  They only have one definition.

If I said blue is the same as red, and you knew it wasn't, would you advise me to keep conflating those words?  No!  You would tell me to quit being an idiot.

I'm not calling you an idiot, by the way.  But since you GET it, that inflation means an increase in the money supply, then WHY ON EARTH would you suggest that we all continue to use the words inflation and deflation incorrectly???  There is no excuse for that.

Sun, 06/22/2014 - 09:23 | 4882453 smacker
smacker's picture

"Keynes decided that falling prices discourage consumers because they are likely to defer their purchases."

Keynes was a moron. I've never bought into this crap view of deflation. What actually happens in periods of falling prices is that smart people make a once-off adjustment in their spending habits and only buy today what is necessary today. What they need tomorrow, they buy tomorrow. And so on. Given all the wailing about excessive consumerism that comes from certain quarters of society, that adjustment should be welcomed as it almost certainly results in less unwanted garbage being thrown away.

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