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Fear And Dread Of Deflation - The Keynesian Big Lie At Work
Submitted by Michael Pento via Contra Corner blog,
The fear of deflation has become the cornerstone of Keynesian economic thought. A lack of inflation has been used to explain periods of economic weakness from the Great Depression of the 1930’s, to the Great Recession 2008-2009. And now, that philosophy has been adopted as gospel by those that control the Federal Reserve and virtually every central bank on the planet. In reality deflation is cathartic, and a necessary condition to heal the economy.
If deflation were allowed to naturally run its course, as it did in the brief Depression of 1920-21, depressions would be sharp but fairly short in duration. And the economy would find itself on firm footing fairly quickly.
However, Keynesians view deflation as the source of a destructive cycle in which; asset prices plunge, companies cut jobs, spending plummets, and a permanent recession sets in. Therefore, the prevailing current view maintains that deflation is something that needs immediate intervention of massive monetary stimulus–you can say they have become deflation phobic. This is why I find it fascinating that Keynesians, who proliferate in central banks and in the financial media, are relentlessly cheerleading the recent spate of deflationary data. And, just to be clear, deflation has not been limited to the New England Patriots’ footballs–it is everywhere you look.
However, it is the height of hypocrisy that Keynesians use the specter of deflation to frighten us into believing we need to endlessly dilute the value of our currencies and take the rate on our savings to zero percent. But then, at the same time, take every data point that points to falling prices as another reason to be bullish on markets and the economy. Their mantras are: Lower commodity prices–a boost to the consumer, plunging interest rates–an increase in mortgage refinancing, I actually heard a commentator suggest crumbling copper prices were a boon to minting pennies–he obviously didn’t realize pennies have been minted mostly with zinc since 1983.
How can Keynesians celebrate deflation, while at the same time use it to scare us into accepting ZIRP forever? The easy answer would be, they are cheerleaders for the stock market…and I believe they are.
But a more compelling reason is these individuals have convinced themselves that a group of 12 academics can arrive at better conclusions than the free market. So enamored are they by the collective wisdom of our men and women who occupy the Federal Reserve, that they can’t bring themselves to imagine there may be some unforeseen negative consequences to their actions. And, because for a moment it appeared as though the Fed would have a graceful exit from QE, their blind faith in micromanagement of markets appeared to be warranted.
Keynesians are unable to acknowledge that printing and borrowing money has simply been a failure in bringing sustainable and vibrant growth back to economies.
Unfortunately, we are just beginning to experience the pain associated from believing central banks can obliterate the free market pricing of stocks, bonds, commodities and currencies for seven years with impunity. Most importantly, there is an inherent danger in basing investment decision on the capriciousness of a handful of individuals, as opposed to economic fundamentals and markets.
For example, Mario Draghi is doing his best imitation of the Fed and the Bank of Japan in promising to buy at least 1.1 trillion euros worth of public and private debt over the course of the next year and a half.
However, much like in the U.S. and Japan, Europeans will find that monetizing debt will do little in the way of engendering growth; but will be remarkably successful in destroying the purchasing power of the middle class.
The ECB’s bid to monetize massive amounts of Eurozone sovereign debt won’t rescue the economy or do much in the way of creating inflation. This is because sovereign bond yields are already close to zero percent, and even have negative yields in some cases. Once the ECB buys debt from private banks they will likely sit on most of that new central bank credit. Why would private banks buy new government bonds that offer no interest and have tremendous downside risks to the premiums? And why take the risk of making new loans to unqualified borrowers when the interest rate they can charge in nearly zero percent?
In fact, the private banks that already front ran the ECB’s bid could very well just unwind their positions to Mr. Draghi and then sit on that cash. And the hopes of “saving” the European economy from the disastrous fallout of deflation will go down in history as yet another failure of central banks to manipulate markets.
Central bankers tend to be duplicitous and incompetent plutocrats. Investors would be far better off placing their faith in markets and real money instead of fiat currencies and empty promises. Of course, this misplaced faith will eventually lead to the biggest shock of all…the soon to arrive collapse of paper currencies and the insolvent sovereign debt backed by central banks.
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Maybe the limp football was a omen
More Like "Fear and Loathing In Las Vegas"
The Keynesian's on a massive Ponzi hallucinagenic liquidity currency binge in Las Vegas!
Every Keynesian economy needs a Priapism.
If your 'benefits' last for more than four hours please contact your Dr. Bernanke.
It's simple.
Central Banks are one-trick ponies. All they can do is print money. Yes, they also set government interest rates and domestic FRB policy etc, but these are not material. The only economically significant thing they can do is print.
So. Inflation HAS to be good and deflation bad. Otherwise they are impotent.
The reason they exist is to print money from nothing. All else is ackground noise or deceit.
CBs are the bureaucrats tool to hide the theft of the value of your work. That is strikingly similar to slavery, isn't it?
The Central Bank also exists as a layer of complexity in the financial web to obfuscate that Gubmint to continuously overspend and deflate the money value while not damaging the economy. We must print! Deflation will destroy us all!
There is nothing left for them to pull forward. They have stolen as much from our grandchildren as possible. ..... Game Over.
No, no, there are still lots of funds to be stolen in bank accounts (in progress), pension funds, IRAs, private hedge funds, etc etc. They ain't done yet.
The easy stealing was done because unborn children rarely complain. Now they have to steal from the living. First from the kids then they move up the age ladder. Kids and teens are too ignorant to complain. The young adults too busy to notice then they'll come for the middle aged and eventually the elderly.
It's a brilliant plan. Divide and conquer. PLay off the age groups, the racial groups, the sexes against each other and systematically rape them.
I agree. In their stealth way they are brilliant in how they rob and pillage in broad daylight and the sheeple don't see it. Sadly, it will end for them badly.
Dup
Everyone needs to brush up on their Silvio Gesell -- because that is where we are headed. Keynes studied him closely.
Repost:
I wonder how Greece would look today if:
- in 2009 the US Military Seized DOJ for Waivers on Prosecution of TBTF Bankers (date?), Seized the White House & President, Seized the US CON-Gress
We know we will see another Bailout Attempt (Bail-In), but there doesn't seem to be any communication from the Pentagon letting CON-Gress know that Bailouts & Bail-Ins are not Acceptable
- Rule #1, Government & Banking must KNOW there are Consequences and Leaders will be held Responsible for anything that looks & smells like a "Silent COUP" by Elites & LOBBYIST
- Rule #2, Standard Accounting matters, Auditing Matters, Heads Will Roll
Did you mean those in SERVICE to our country? LMFAO. News for you.... the only service they're into is getting all they can at the public trough for their own personal gain. The military has been comprised of psycopaths and morons for a long long time. Exactly mirroring the gov't. Its a design feature not a bug. The word SERVICE has been so distorted and turned end for end by anyone in the public sector that its a shame. What should mean doing for others through your own personal sacrifice has become taking from others as much as you can while they sacrifice for you.
Did you mean those in SERVICE to our country? LMFAO. News for you.... the only service they're into is getting all they can at the public trough for their own personal gain. The military has been comprised of psycopaths and morons for a long long time. Exactly mirroring the gov't. Its a design feature not a bug. The word SERVICE has been so distorted and turned end for end by anyone in the public sector that its a shame. What should mean doing for others through your own personal sacrifice has become taking from others as much as you can while they sacrifice for you.
Ukraine plans to inflate its way out of economic troubles. As National Bank Governor Valeriya Gontareva said on Jan. 16, the monetary base will increase by 27 percent this year.
http://www.kyivpost.com/content/business/national-bank-plans-large-scale-money-printing-this-year-378568.html
http://youtu.be/36FF3ORydg0?t=18s
The banks don't want anyone to obtain capital by saving, only by borrowing. They can't control savers as well as they can debt slaves.
Of course if people stopped borrowing the evil bank plan falls apart. Oops.
Stop borrowing. Pay cash. Use entities other than banks. Maybe start your own credit union and "fix" the problem with banks by not lending money. See how that works for you.
They have been playing single person poker for a long time now and still continue to deal from one hand to the other without restriction. The stockmarket is there with the majority of purchases done by the FED money.
The FED could follow the Chinese model and build ghost cities of houses. It is kinda doing same by changing accounting to force banksters to hold foreclosed houses rather than selling into a weak housing market.
People are called peons and serfs because they don't matter
Problem is too many people at the troth, too many people too stupid, too many people don't give a fuck, too many people can't agree on anything, too many people don't give a fuck.
I DISAGREE AND DON'T GIVE A FUCK!!!!!!
If you like your fuck you can keep your fuck.
I up-arrowed you for a correct use of the word "too".
Very rare
I two was going too say that to
Too people saying the same thing is twice as strong.
Too many can't spell 'trough'.
Troff
Keynesians are unable to acknowledge that printing and borrowing money has simply been a failure in bringing sustainable and vibrant growth back to economies.
Keynesians don't give a damned about bringing sustainable and vibrant growth back to economies.
They are just getting all they can get while they can and to hell with everybody else ...
This is why that goose and his 12 billion hedge fund at the top of the main page predicting equities to be devestated is wrong.
They'll print. And when it doesn't work, they'll print again claiming they're on the right path, but they didn't print enough.
I'm not sayin it's right. I'm just sayin.
Yep. Krugman claims that the almost $1 TRILLION "stimulus" wasn't enough in 2009. He's a frickin moron.
In 2009 it was more in the range of $20 trillion (don't forget the $16 trillion bail out to Europe banks by the FED).
eh? "$16 trillion bail out to Europe banks by the FED"? are you serious? there was one swap between ECB and FED, it was about one trillion, and it was... reversed
http://www.forbes.com/sites/traceygreenstein/2011/09/20/the-feds-16-trillion-bailouts-under-reported/
Deflation is costly for treasuries and banksters. They have good reason to be fearful. Their only remedy is ctrl+p.
Zero's poll numbers are back at 50%. That number always seems to hover around the entitlement numbers. I simply have to laugh at those who continue to believe in big government and Obama as their savior. The Elite have been using these sycophants as their ticket to absolute control. If they get it and "the great reset" happens, these same entitlement dupes will be of no further use. They will be a drag on their new world order. Just as Stalin starved out the Ukranians to rebuild his modern Soviet state, such will be the fate of these 50%.
The only reason why Obama's approval rating has gone up is because gas prices have fallen.
As most dumbass Americans seem to think POTUS sets has prices, he gets credit/blame on their general direction.
The idea that deflation is benign in an economic system of huge, fixed amounts of debt is ridiculous. This notion does not hold in most modern economies. Now, if you want to talk about the way our economic system operates with so much debt financing, that's more than a valid discussion.
But, this childish idea that deflation is healthy for our economy is insane. It was valid under the good standard with lower debt levels. Not now.
And for anyone who thinks I'm therefor espousing letting the printing presses rip, I'm not. Believe it or not, there's a middle ground.
The idea is not that deflation is benign, but that it is an inevitable step in the business cycle that clears out malinvestment accumulated during the period of euphoria. Unviable businesses will wind up and the debts will have to be written off. Viable businesses will have their debt restructured. If not tinkered with, that process will be very swift and won't last very long. But attempts to avoid it can only mean prolonged agony for most, which is what is being experienced today.
Anyway, it is not that the Keynesians don't understand this. They do. However, the resource constraints the world has reached means there is no possibility of the high cost Western economies ever recovering from the next deflationary depression. That is the reason they have been trying to avoid deflation and throwing everything they can to do so. But, of course, they will fail.
Well the Smart US Con Men always use Rhetoric, Spin, Propaganda and often Twist the memory of men who are supposed to be the Legend. Milton Friedman, Ronald Reagan, founding fathers,... Adam Smith, why not Keynes?
Repost:
I get that MMT & Keynesian Economics is what we have in the USA... and maybe in UK & EU under their Social Market Economics.
Seems to me 6 years of LIRP/ZIRP/NIRP & QE are just Mafia Tricks.
- I'm not sure that 6 years of LIRP/ZIRP/NIRP or QE was ever in Keynes Mind, his intention, his theory, or what have you
- We hear that Keynes got rich since he was smart, but he did defend the BIS when it was totally corrupted by Nazi Deals, and saved it from termination when Ethos would demand "Clean-Up" and Dissolution of BIS (Keynes may have been bribed or influenced by US or European Secret Agents)
- We are not looking at either Science or Conservative Business Practices over the last 6 years, this looks Like RICO Violations, Anti-Trust Violations, Unfair Business Practices, Looting of National Wealth, Treason, an End to the State of Justice, and an End of Free Markets & Small Businesses as Large Multinationals are handed Advantages in Competition
We can place responsibility for US Conditions on our leaders of the last 30 years without placing blame on a Dead Man since... what good does it do?? What does it change??
JMK envisioned periods of QE/ZIRP practices to be TEMPORARY stimulating tools. Keynes would see the current boobs running the political and banking systems as the lunatics that they are...so your thoughts are 100% correct.
I get amused at the Keynesianism demonization that passes for thought around here. Keynes never advocated the crap that is going on right now and it is not Keynesianism it is CRONY CAPITALISM.
Own it.
Good point. We had multiple bubbles in the crash of 2008, then no investigations, waivers were handed out like candy, the end of the State of Justice was clear. This can only mean Crony Capitalism.
And you know activists have been saying this for 100 years or more. That is how we got Worker Rights & Work place safety for dangerous work. But the end run on worker respect is "Free (Slave) Trade".
Thanks for that.
If my input costs drop and I can afford to lower my prices, while at the same time increasing my profit per unit, everyone wins. Products are cheaper, my increase in profit will allow me to either hire more workers or pay my current workers better.
Even if I do not increase wages, the increased purchasing power of the current pay will act as a pay increase leading to more consumption. Deflation does not lead to lower consumption, it leads to higher consumption because people believe they are getting more form their money.
Sorry Keynesians, when people see a Big Mac meal costing $7.50, they don't rush to spend money hoping to buy before prices increase. They save money because they feel poorer. When people feel poorer, they feel the need to hoard.
What most people do not realize is the single biggest culprit of inflation is the insane expansion of profit margins for the mass publicly traded retailers. A historic profit margin of 30% has ballooned to 60-70%. In many cases the manufacturing cost of a product has declined over the past 20 years, but the retail cost has doubled. Items that were manufactured for $10 in 1990 retailed for $20-25. The same product manufactured in China today for $7 now retails for $50. The consumer is paying far more for an inferior product.
This is the legacy of Keynesianism. A booming equity market printing money for the 1%, poverty and garbage for the rest.
I get your point, but why are you assuming your prices won't have to fall in a deflationary environment?
And what if your company was debt financed (fixed amounts)?
And what if your employees live paycheck to paycheck with their mortgage and car payments and can't afford a REDUCTION in their earnings? It turns into an endless cycle.
I agree with your overall premise if we had an equity based economy, not debt.
Maybe if we would repeal the corporate income tax, mortgage internet deduction, would be start.
Debt is key here. Payments don't move. Wages decrease. Disposable income shrinks. Assumes people are still buying your product.
Yep.
It used to be Keynesianism took from the future for a boost in the present.
What the present day NEO-Keynesians conveniently forget is that eventually whatever you have goosed you need to withdraw from the future. That part does not work with the WS Banksters whose bonus plans don't have the Keynesian rider...
Dickheads, I hope they all die of syphilis.
Rest-assured, there's a special place in Hell for liars, hypocrites and money-changers (bankers).
Inflation helps the government... deflation helps the people.
Neither inflation or deflation helps the people. A stable environment is what helps the people.
Inflation or deflation represent swings in economy that make us serfs suffer.
I have a lot of respect for Pento and Stockman, but what part of "we are no longer capitalists, but are debtists" do they not understand? Deflation isn't sustainable in a debt-driven economy. The only thing that IS sustainable is more inflation and a corresponding increase in debt.
Well...until the day that it isn't. Our choices are 1) kick the can down the road or 2) kick the can down the road.
Why does one need to be a debt-ist for the rest of time?
Who gets hurt if one changes to a save-ist?
FUCKING WS? WHO THE FUCK CARES ABOUT WS?????
WS has taken enough money from the future of humans to never get paid again.
Default? Who cares?
Dollar goes to Hell? Who cares?
Financials were too big to fail, and now stocks and bonds are too high to fall. Same shit, different day, delay, delay, delay.
Hind Sight.
How much better would the USA be if the Government Printed enough money to rebuild the aging Infrastucture. More "cash" would be in circulation to earn and pay off debts. Nw (replacement) bridges/roads and public transits could have been created. Jobs and taxes increased and that growth could have taken hold. But as I said.......Hindsight.
Not that we don't need to work on our infrastructure, but printing money doesn't create wealth, it just moves it around. It's better (and more honest) to use current revenue to pay for it, because it doesn't create the false impression that we have the productive economy PLUS all this new money (and the new jobs created). Be upfront and say that X number of jobs will have to be lost (due to the taxpayer having less to spend) in order to create X number of jobs refurbishing our infrastructure.
Isn't that exactly what Obama promised during his election campaign in 2008?
Of course, he stopped talking about all of those "shovel-ready" jobs in 2009!
Someone explain me the following please:
"If deflation were allowed to naturally run its course, as it did in the brief Depression of 1920-21, depressions would be sharp but fairly short in duration. And the economy would find itself on firm footing fairly quickly."
If we have indeed deflation, that would mean defauls, big BIG defaults, everybody around the globe would lose their shirts. Pension funds, governments, banks, hedge funds etc. around the world: US, Canada, Europe, China and the rest of the BRICS, Japan, etc. A synchronous pandemic bust. Previously, this was 1 country at the time, where the bust did not occur in the rest of the world, but never has this occured on a global scale. The banking system IS interconnected, and it will all go down, or it will survive "somehow". They are called TBTF for a reason. Not that I'm a fan of the current system (or the TBTFs), quite the contrary. But I'm not so optimistic about the speedy reboot after the crash. This is what is different this time. I hope I'm wrong. I'd be happy for some other opinions, views, reasons, and outlook from ZHers out there. Thanks and good luck to all.
+1 CHX I can offer a... generalization. that American portfolios are generally more leveraged and more in stocks. contrast this with European banks that are even more leveraged but more in business loans, something that in the American financial environment geared on companies that are less private and more public (i.e. issue stocks and bonds for the financial markets) is regarded as toxic, while here it's normal. but also contrast this with European portfolios that are the least leveraged, and more in sovereign bonds
so what do we have as a result?
a stock market crash would hurt American portfolios "too much". hence the stock market "plunge protection team"
a bond market crash would hurt European portfolios "quite a lot". hence the various alliances including monetary and sov debt, including the ECB
both markets are probably overvalued, and should go down 30% according to some. the real fight is about who should recognize losses
and so the path of least resistence is the US and the UK pushing for stocks, helped by various other stock markets worldwide
and this, in return, generates stresses that are relieved by the currency war we are witnessing. which is dangerous, because it can kill whole currencies
on the top... megabank bets in the tune of trillions, a fantasy world of contracts that chains the megabanks together, then whatever happens they want to stay on top
meanwhile, this all bothers the real economy whenever bulls and bears (too many of both) "play" with things like food commodites, gold or oil and currencies. the problem there is that too much speculative firepower yanks prices up and down to a volatility that benign speculation should actually make lower, not higher
(note, when I write "portfolios" I mean pension funds, too. all portfolios, not only the "rich")
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So the recap is simple, if perhaps a bit shallow: America fears deflation above anything else. having the power of global reserve currency... the result is currency wars
Nice summary of why we are on the Titanic of electronic money illusion.
Losses are losses. Papering over them with accounting gimmicks doesn't make them go away... it just makes them harder to see and shifts them from those who took the risks that ended up losing to those who didn't take the risks.
A periodic deflation is good.
The problem now is that small, regular deflations have been prevented and the "reset" will be huge.
It's going to happen eventually, so the choice is: a quick deflation by our own choice and, hopefully, under a certain amount of control,
or a stretched-out depression over perhaps decades, not by our own choice and most certainly NOT under our control.
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I doubt my saying this has made you any happier, but I believe that no one is really in control now (although some central-bankers will try to pretend they are). So when TSHTF you're on your own; and you'd better be ready.