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"First The Deflation - Then The Inflation"

Tyler Durden's picture




 

Submitted by Martin Armstrong via Armstrong Economics blog,

Tetrarchy-Medallion

 

When the Roman Empire collapsed during the reign of Gallienus (253-268AD), for the next two waves of the Economic Confidence Model (17.2 years) Rome remained in chaos.

Then a general fought his way to power – Diocletian (284-305AD).

During this period, inflation soared. Money really became in kind and the purchasing power of the debased coinage collapsed with the lack of confidence in government. This became akin to the crisis in Germany during the 1920s. People simply did not really accept the debased Roman coinage.

DeFINF-CL

It was Diocletian who instituted wage and price controls and issued an edict on restraining prices.

First you have the massive DEFLATION and then government is forced to debase the money supply that finally reverses the economy sending it into a INFLATIONARY spiral.

 

The second phase is when gold will rise. But you first have the DEFLATION that reduces tax revenues and then you have the INFLATION set in motion by rising costs.

 

What is interesting is passports were invented by Diocletian. 

PASSPORT ROMAN

 

WHY?

For the same reason we see FACTA and Civil Forfeitures. You could not travel leaving your town until you paid your taxes. Hence – papers please! Except in those days they were metal. The USA has passed the very same law if you owe more than $50,000 to the IRS they will revoke your passport until you pay-up.

Government will hunt down money.

This is why history repeats because humans will respond to the same set of circumstances in a predictable manner. Just follow history and you will see the answer. So yes – eventually we will see the shift from PUBLIC to PRIVATE and that is the inflationary cycle. That does not arrive until AFTER we start BIG BANG.

 

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Fri, 01/30/2015 - 13:51 | 5726072 Belrev
Belrev's picture

Some unbelievable Ukraine war footage that they will not show on TV.
THIS IS NOT A HOLLYWOOD MOVIE.
THIS IS REAL. GRAPHIC WARNING 18+ with English subtitles.

http://youtu.be/3TZ9Q18HKlQ

THANK USA FOR THAT!

 

 

The video is graphic and it does contain a lot of harsh language. The video is about captured Ukrainian POWs on a fool's mission to retake the Donetsk airport. After about 12 minutes or so it gets gruesome, the beginning is not so bad.
Fri, 01/30/2015 - 13:54 | 5726095 Latina Lover
Latina Lover's picture

That is one difficult video to watch.  No children, PLEASE.

Given the above scenario, the CB's had to allow deflation, to lower inflation, prior to reversing and using the 'nitro' kit.   In 5 years, gold will be much, much higher.

 

 

Fri, 01/30/2015 - 14:02 | 5726141 NoDebt
NoDebt's picture

I couldn't believe what I heard coming out of the radio as I was listening over lunch.... Rush Limbaugh blasting the Federal Reserve as the phony recovery creator via the stock market.

Normally, he's a bit dim-witted when it comes to money and finance, in my opinion- too focussed on the Red/Blue distraction.  But he sounded like Tyler Durden himself a few minutes ago.

Its getting out there.

Fri, 01/30/2015 - 14:09 | 5726185 TerminalDebt
TerminalDebt's picture

so we're in deflation right now? So why aren't you telling people to sell their damn shiny metal?

Fri, 01/30/2015 - 14:16 | 5726234 Renfield
Renfield's picture

That's when you buy it, silly.

Fri, 01/30/2015 - 14:38 | 5726340 Creepy Lurker
Creepy Lurker's picture

Oh, Renfield!

 

I've waited a long time to do that. :)

Fri, 01/30/2015 - 15:15 | 5726514 J S Bach
J S Bach's picture

"First The Deflation - Then The Inflation"

 

Note to the uninformed...

This "cycle" only occurs with debt-based fiat money.

Sound money on the other hand (that with something of value backing every dollar and 100% reserves in banks)... is actually quite stable.  Eliminate the international usurers and you eliminate the problems... period.

Fri, 01/30/2015 - 16:07 | 5726750 Oquities
Oquities's picture

disinflation, then stagnation,

followed by deflation

then you get inflation

all across the nation

this dangerous fixation, then

begets hyper-inflation

 

unless it's just my imagination

Fri, 01/30/2015 - 16:28 | 5726849 Jaspergers
Jaspergers's picture

So wait, no moar joyflation then?

Fri, 01/30/2015 - 16:28 | 5726852 DoubleTap
DoubleTap's picture

Where does masturbation fit in there?

Fri, 01/30/2015 - 16:40 | 5726894 Oquities
Oquities's picture

the parts about dangerous fixation and imagination have an implication toward masturbation

Fri, 01/30/2015 - 14:17 | 5726237 Pinto Currency
Pinto Currency's picture

 

 

Deflation is where money (gold and silver) buy more and more goods.

You do not have runaway inflation with gold and silver money - only with paper money.

We are seeing the acceleration of deflation now.

Paper money collapse will ultimately follow.

Fri, 01/30/2015 - 14:32 | 5726306 commander gruze?
commander gruze?'s picture

Keep stacking. Silver for wealth preservation, bitcoin for instant transactability.

Fri, 01/30/2015 - 16:36 | 5726875 NoDecaf
NoDecaf's picture

"instant transactability"

Yeah I heard they are using bitcoins in the Donbass region.

Sat, 01/31/2015 - 15:56 | 5729489 commander gruze?
commander gruze?'s picture

Althought I don't believe they actually do, it is perfectly possible to use bitcoin off-line. On average transaction size is under 400 bytes. If hard pressed you can transmit it in Morse code to someone who will relay it onto the internet. And also, last time I checked ham radio wasn't entirely dead either.

Fri, 01/30/2015 - 14:43 | 5726376 DeadFred
DeadFred's picture

The dollar goes to 160, then to zero

Fri, 01/30/2015 - 14:55 | 5726434 Obama LaForge
Obama LaForge's picture

That is not what deflation is. Deflation is where cash buys more and more goods (like gold, which is not legal tender). In any case, though, if there is a deflationary crash, gold would spike in expectance of the default on all the debt, and the hyperinflation. Only when times were good, would gold be low. The best time to buy gold, I think, is before everything crashes, when everyone is riding high.

Fri, 01/30/2015 - 15:54 | 5726652 Pinto Currency
Pinto Currency's picture

 

 

It's not about government fiat dictating what money is - it's about what the market thinks.

Gold and silver are money to the market. 

Fiat currency is merely currency - not money.  For a while, currency will have increased buying power but then the realization will hit that it is being inflated away and then the currency will collapse in buying power while the buying power of money will be maintained.

Sat, 01/31/2015 - 02:08 | 5728286 FIAT CON
FIAT CON's picture

Kinda like what the Federal Reserve has done to the purchasing power of the FRN since 1913

Just look at the price of gold from 1913 to now. 1oz of gold will still by a lot, but what will $18.92 buy you!

Fri, 01/30/2015 - 14:22 | 5726245 Dadburnitpa
Dadburnitpa's picture

Play the long game. Let the sweaty crowd fight over the scraps.

Fri, 01/30/2015 - 19:33 | 5727474 Shaznardickleze...
Shaznardickleze the Doon's picture

Does Evil Kinevil break pump on his tear to the launch ramp? NO.

This is why you buy into deflation and ride out the inflation. Like a f'kn boss.

Fri, 01/30/2015 - 14:09 | 5726190 maskone909
maskone909's picture

the fightclub movement is gaining traction.  rush panders to certain large demographic.  he has an entire marketing team constructing his talking points.  this is good news as it shows there might be an awakening

Fri, 01/30/2015 - 14:21 | 5726260 cpnscarlet
cpnscarlet's picture

Prophet Limbaugh was actually the first of the conservative talkers to quote articles out of ZH. I heard him do it first back in 2013.

For 20 years he was telling the people how we had to turn back to a moral center. Now he's beginning to tell us "too late, you're fucked".

Fri, 01/30/2015 - 14:35 | 5726331 p00k1e
p00k1e's picture

Was he on Oxy then…  Or chill’in in the Dominican Republic hopped up on Whippets and Vaigra? 

Fri, 01/30/2015 - 15:52 | 5726676 cpnscarlet
cpnscarlet's picture

Not too sure about the timeline...

Too bad we all can't be perfect like you and Ted Kennedy.

Fri, 01/30/2015 - 14:40 | 5726353 surf0766
surf0766's picture

There are others who have been talking it before 2013

Fri, 01/30/2015 - 16:28 | 5726787 daveO
daveO's picture

Yea, I heard Limbaugh, too. I know he reads Zero Hedge because he's mentioned it several times. I was asking, "What took you so d*mn long?" Maybe, it's just now soaking in?

At the same time I was hearing this, I was reading junk mail from Harry Dent, saying gold was going to $250/oz due to the inevitable Baby Boomer demographic deflation! No mention of how the FED and US gov. are maniacally counteracting the natural, cyclical deflation. Just talking about cycles, like they're set in stone. That mentality worked before 2008, but the counterfeiting won't end until the the FED is stopped! If gold goes to $250, that would imply about 90% of current US gov. debt would be extinguished. Gold would be worth more then than it is now because banks, who hold US bonds (not gold) as reserves, would need new reserves, or bust. It's all relative. 

Fri, 01/30/2015 - 16:22 | 5726819 felix2
felix2's picture

Just recently heard Rush mention this site.

He was trying to remember where he had read some item and he said it may have been Zero Hedge ....

 

Fri, 01/30/2015 - 17:12 | 5727039 Farqued Up
Farqued Up's picture

Coming soon to a channel near you will be live broadcasts of Limbaugh sucking the Republican dick de jour. The EIB Network has to be owned by the RNC which is owned by the banksters. I hate Republicans as much as Democrats. This is the last day of January and no legislation repealing Obamacare up for vote yet? Lying motherfuckers. 

Fri, 01/30/2015 - 16:55 | 5726968 Farqued Up
Farqued Up's picture

Limbaugh, the Red team handler in the tag team match. Afterwards they all leave the arena together with a beer and cigar in hand, laughing at the fools.

Fri, 01/30/2015 - 18:03 | 5727257 Calmyourself
Calmyourself's picture

NODEBT, I called my wife and told her Rush Limbaugh is a DEAD MAN walking..  He let the cat out of the bag, he better keep that plane in a damn secure hanger.  I have never heard anuthing like that on the radio.  He exposed central banks and their cheap money supply to the street in about a 2 minute rant.  I never thought i would hear that, amazing...

Fri, 01/30/2015 - 14:32 | 5726200 pods
pods's picture

I cringe when I see these inflation versus deflation debates.  

Usually when an author uses the term "deflation" they mean "credit contraction/implosion" and not deflation due to productivity increases.

People take issue with deflation portrayed as bad (see LoP and myself arguing); the whole thing ends up being a Mexican, a Polack, and a Frenchman arguing with each other in their own language.

When credit is overextended to a government, instead of defaulting hard, they soft default by debasing the currency.
That is what Rome did.  That is what the USA does with their 2% inflation target.

But it is NOT deflation.  Deflation occurs when the ICE replaced the plow horse, etc.

Deflation is good for humanity.

Inflation is good for bankers and governments.

pods 

Fri, 01/30/2015 - 14:34 | 5726308 El Vaquero
El Vaquero's picture

I tend to differentiate between prices going down because of a monetary contraction and prices going down because of advancements in productivity.  I think of inflation/deflation themselves as monetary phenomena, though due to the sloppy nature of the English language, I am not beyond calling declines in price due to advancements in productivity as price deflation.  I will normally qualify that by placing 'price' before 'deflation' though.  If I just use 'deflation,' it is normally a safe bet that I'm talking about a monetary contraction, though a significant plunge in money velocity could come into play there. 

 

I think that, however you refer to the different phenomena, it is important to differentiate between the two.  Governments don't (hence price controls, capital controls, etc...) so it is a good idea to understand this so that you know if and, more importantly, how government policy is going to break things.  Setting a floor on the price of a good where one player has figured out how to make that good for much cheaper means that marginal competitors will stay in business when they likely shouldn't and the producer that has figured out a cheaper way to manufacture his goods will experience a reduced demand that he otherwise would in the absence of government intervention.  On the flip side, as pretty much every ZHer knows, when price controls are instituted when prices are going up because the currency supply has ballooned, it breaks supply chains and shelves go empty.  Conversely, the price controls that Roosevelt had put into place to fight (monetary) deflation  (really, he formalized what Hoover had brow beat industry into doing "voluntarily,") jobs went away because employers could not afford to pay employees in real terms. 

 

Governments almost always react the wrong way when the problem is a monetary phenomenon. 

Sat, 01/31/2015 - 11:02 | 5728610 cigarEngineer
cigarEngineer's picture

It is not important to distinguish between the two. The prices are the same regardless of how they got there.

Fri, 01/30/2015 - 14:12 | 5726207 ml8ml8
ml8ml8's picture

Everyone has patience in their CB and currency....until they don't.  It takes extraordinary patience because it is a cliff-styled event.  Doesn't happen, doesn't happen, doesn't happen, BOOM! Some seemingly small event triggers a loss of faith and monetary inflation explodes overnight.  IMHO, Japan will be first.

Fri, 01/30/2015 - 14:17 | 5726241 El Vaquero
El Vaquero's picture

If you believe that supply chains in the good'ole US of A are going to break during your lifetime, watch that, understand that there is much, much worse that humans can do to each other, and then harden yourself to it. 

Fri, 01/30/2015 - 14:34 | 5726315 p00k1e
p00k1e's picture

5 years?  Gold holders said the same thing in 1980 @ $850.

 

 

Fri, 01/30/2015 - 15:00 | 5726456 Creepy Lurker
Creepy Lurker's picture

So you're fully invested in stocks then?

Fri, 01/30/2015 - 15:06 | 5726480 Alea Iactaest
Alea Iactaest's picture

Paperbugs. They're like cockroaches only they won't survive the Great Incineration.

Fri, 01/30/2015 - 15:05 | 5726474 Alea Iactaest
Alea Iactaest's picture

I'll consider the two time periods (then and now) as being analagous, but they are hardly the same. Adjust your expectations, time horizons, entry/exit prices and other strategies as necessary. And I'd rather be early than late, given the likely consequences of getting this wrong.

Fri, 01/30/2015 - 14:49 | 5726398 Grouchy-Bear
Grouchy-Bear's picture

We see it all the time over here, because we do censor the images and videos. What is, is what is and by covering up what is really happening, we cover up truth. If Americans saw this on the nightly news there would be a different attitude. I sit in Russia and see this stuff all the time, for life is that way. I spent years killing for the war machine in the old days and when you get over the shock of death, death, death and more death. You kinda dislike killing anymore...

But I promise you that I would pick a weapon up again in a heart beat, if the west attacks Russia and not use any nukes. If it was a ground war, I would be right here doing just what they just did on that video to guys who were lied too...

It is time we take a stance and I make my stance on this side of the world. I left the crap in the west and just want peace and quiet...

Sometimes we have to fight for our peace and quiet...

Yes kids should not see it, but then the kids in Ukraine are seeing it...

Fri, 01/30/2015 - 15:35 | 5726614 Titus
Titus's picture

With peace comes complacency, weakness, and eventual corruption of the morality of the principled soldier.

That's what's happened with the US population. Liberty was exchanged for comfort, done so through brainwashing via the idiot box and top down feminizing programming.

There is only one anwer to this world corruption, and that's everyone must become a principled and always on guard soldier. One mistep, a step toward complacency, and the jackels attack.

Fri, 01/30/2015 - 14:01 | 5726145 maskone909
maskone909's picture

i used to watch liveleak all the time.  nowadays i just dont have the stomach for it.  people really do some fucked up shit to eachother. 

Fri, 01/30/2015 - 14:29 | 5726297 kchrisc
kchrisc's picture

Two things on the video:

1) Most, if not all of those Ukrainian soldiers, are victims themselves, not "scum." I am sure most would have chosen not to have taken up arms against other Ukrainians, or anyone else,, unless forced to.

2) I wonder if any of the Ukrainian soldiers knew that they were really fighting, and dying, for Zion, and not the Ukraine?

The banksters need to repay us.

 

No Goy will be spared in the battle to prop up the Zionist west, their banksters, and to achieve Lebensraum, and pipeline routes, for Israel in Syria.

Fri, 01/30/2015 - 14:39 | 5726346 El Vaquero
El Vaquero's picture

Victims or not, if you go into a town where you have been killing the friends and relatives of the survivors, they're probably not going to give a shit whether you are a draftee or a volunteer.  It's just the way it is.  Most people really don't like watching their families getting blown up and they tend to have very strong emotional responses.  That's why I urge caution when SHTF.

Fri, 01/30/2015 - 15:48 | 5726663 Martian Moon
Martian Moon's picture

University of Hawaii study on Democide

https://www.hawaii.edu/powerkills/20TH.HTM

260million civilians killed, mostly by their own state, in the last century alone

this time around the banksters are planning for much higher casualties, in the billions

this must not pass

Fri, 01/30/2015 - 16:21 | 5726818 kchrisc
kchrisc's picture

Government is THE plague.

The banksters need to repay us.

Fri, 01/30/2015 - 15:56 | 5726690 mtndds
mtndds's picture

I will believe deflation is here when home prices in Socal drop 50% as well as college tuition dropping 50%.  Otherwise the band plays on!

Fri, 01/30/2015 - 16:03 | 5726735 froze25
froze25's picture

This video http://youtu.be/3TZ9Q18HKlQ is really something we will not see or hear about on western media.  I already started sharing it on text messages and social media.

Fri, 01/30/2015 - 13:47 | 5726077 Hitlery_4_Dictator
Hitlery_4_Dictator's picture

Been hearing this for a while now......paitence is wanning 

Fri, 01/30/2015 - 13:57 | 5726124 HelicopterCoPilot
HelicopterCoPilot's picture

It is true.. Expect money financed tax cuts to be a primary pillar of Yellen/Clinton duo, in 2017...

Fri, 01/30/2015 - 14:07 | 5726172 mtl4
mtl4's picture

Precisely the point, you won't get a market crash until everyone believes the market won't crash........the longer it goes, the harder it is to resist the "new market normal".

 

 

Fri, 01/30/2015 - 13:48 | 5726079 Fun Facts
Fun Facts's picture

When the entire western world is running on a 300 year old ponzi scheme that now has to create money out of thin air just to sustain itself, no one should expect a good result.

Fri, 01/30/2015 - 14:59 | 5726452 ZerOhead
ZerOhead's picture

It always created money out of thin air... not merely to sustain itself but primarily to enrich itself...

Fri, 01/30/2015 - 13:51 | 5726087 Skateboarder
Skateboarder's picture

The people don't have {18T, 300T, 2Q} etc. We're all fucking broke; There's no 'money' to hunt.

Fri, 01/30/2015 - 13:53 | 5726096 Hitlery_4_Dictator
Hitlery_4_Dictator's picture

There is some good assets to plunder though, and hey, if they don't have anything they can do some killings I'm sure

Fri, 01/30/2015 - 13:51 | 5726090 drivenZ
drivenZ's picture

"massive deflation"

the key is massive deflation. We're not even remotely close to that. pointless to speculate.

Fri, 01/30/2015 - 13:51 | 5726091 maskone909
maskone909's picture

however, didnt they already debase the money supply?  i guess this stuff doesnt go in exact sequence.  unless they are about to REEEEALY debase the money supply DERP

Fri, 01/30/2015 - 15:10 | 5726502 Nels
Nels's picture

Yes, they debased the money supply.  First they took away the gold base, then they have in recent years greatly expanded the paper base.  But that paper base is not in your or my pocket.  The new piles of paper are in a relatively few pockets, all belonging to 1 percent types.  It is what is causing the increasing rate of separation between the 1% and the rest of us.   Deflation is happening because you and I have few dollars to spend.  The rich don't need to spend now.  When it becomes legal to sell yourself and your family into slavery in one form or another, then their pocketbooks will open.

Fri, 01/30/2015 - 13:52 | 5726098 Carpenter1
Carpenter1's picture

Deflation, then more deflation IMO. But I see the angle, not entirely unreasonable.

Fri, 01/30/2015 - 13:54 | 5726101 SheepDog-One
SheepDog-One's picture

Remember it's different this time, though.

Fri, 01/30/2015 - 13:54 | 5726102 CrimsonAvenger
CrimsonAvenger's picture

Why are they crushing Paul Lynde between those gears?

Fri, 01/30/2015 - 14:08 | 5726179 Sophist Economicus
Sophist Economicus's picture

Didn't like his Hollywood Square performances

Fri, 01/30/2015 - 13:54 | 5726115 orangegeek
orangegeek's picture

still the rise in gold narrative - but no narrative about 600 gold (yes, I realize this is extremely unpopular)

 

here's one:  http://bullandbearmash.com/time-running-find-gold-ready-collapse-600-ounce/

 

of course, this will take months to unfold - nothing will happen over night

Fri, 01/30/2015 - 16:38 | 5726886 daveO
daveO's picture

$600/oz. gold implies 2/3rd's of US debt disappears. I don't see why the Fed. Gov. would allow this after doing exactly the opposite since 2008. More likely, NIRP combined with ever more deficit spending. Thus, growing government at the expense of capital. Ending the FED is our only hope. Bartering outside of the dollar is our only recourse.

Fri, 01/30/2015 - 13:55 | 5726117 fascismlover
fascismlover's picture

The third stage that was left out is gold confiscation.

Fri, 01/30/2015 - 14:04 | 5726152 drivenZ
drivenZ's picture

you know who used to worry about gold confiscation. people on ZH who bought gold 2-3 years ago. Those people are likely down 20-30% on thier gold purchases and no one cares that they own it. 

Fri, 01/30/2015 - 14:12 | 5726202 Sophist Economicus
Sophist Economicus's picture

You really believe that folks on ZH buy physical gold and drive back and forth to their dealers selling on upticks?     So silly

Fri, 01/30/2015 - 16:50 | 5726937 daveO
daveO's picture

Right. They're comparing marathons to sprints. It's nearly impossible to explain to them the essence of money (savings). This ain't a short term trade and it ain't insurance. This is about keeping savings. The 1 yr Swiss bond was at -1%, last I saw. How many years can that go on? Until the banks own everything but the gold and silver that you hid from them. They will ultimately be forced to accept metal savings again, as reserves.   

Fri, 01/30/2015 - 14:08 | 5726167 LawsofPhysics
LawsofPhysics's picture

What gold?  LOL!!  That has never worked out well in the past.  Most people I know have been accumulating during the "good times" when it is on sale.

Pretty cheap insurance at the end of the day and always accepted.  Especially by central banks as the best collateral of all.  Pretty handy after a new monetary system is put in place either way.

Fri, 01/30/2015 - 14:03 | 5726146 explosivo
explosivo's picture

"inflation set in motion by rising costs". You got that exactly backwards, buddy. 

Fri, 01/30/2015 - 14:07 | 5726174 ted41776
ted41776's picture

stagflation followed by rapid hyperinflation.... this is literally macroeconomics 101

Fri, 01/30/2015 - 14:07 | 5726181 czarangelus
czarangelus's picture

Look, just face the fact the bankers are gonna win. They've never had any problems duping morons into killing each other for them at any other point in history. I'd kinda hoped that the Internet might change things, and when people had an opportunity to talk to each other directly, they might choose peaceful coopetition instead of mass murder and torture. Well, we've all seen how that turns out.

Hope for a favorable incarnation in the hereafter. Let there be many mansions, and those who want to kill and cheat can kill and cheat the other people who want to kill and cheat; let the fundie Christers set up their nasty little communes to whatever degree of religious fascism appeals to them; and let the rest of us - we tired, happy few - have our beer, brats, and brothels in Paradise.

Those who are so determined to start WWIII appear certain to achieve it.

Fri, 01/30/2015 - 14:09 | 5726197 Thisson
Thisson's picture

Armstrong's comments on gold provide no logical underpinning.  Historically, gold outperforms during periods of deflation, *not* during periods of inflation.  The key relationship is between gold and real interest rates.  As real interest rates decline, the opportunity cost of holding gold decreases, while its purchasing power increases.  You can't have a meaningful discussion of gold without including interest rates.

Here, we are experiencing slow deflation (destruction of credit), but it's being papered over via CB asset purchases.  This deflation could accellerate when credit is restructured, for example through sovereign defaults, but we're not there quite yet.  The reaction to such deflation could well be running the printers.  Those interested in learning more can read here: http://www.itulip.com/kapoomtheory.htm 

Fri, 01/30/2015 - 15:06 | 5726471 rejected
rejected's picture

Link doesn't work....

Not Found

The requested URL /kapoomtheory.htm  was not found on this server.

Apache/2.2.22 Server at www.itulip.com Port 80
Fri, 01/30/2015 - 17:12 | 5727042 daveO
daveO's picture

"The reaction to such deflation could well be running the printers." -Exactly.

This is what they've been doing since 2008!!! There is no reason to expect any other behavior until we end the counterfeiting FED. If the average prices are going down, that just means they are not papering over fast enough. For example, the end of QE in October and what's happening now.

Gold is money and it's price in fiat debt/dollars increases over time because it is measuring the amount of debt/fiat in circulation. It can get caught up in bubbles, like 1980. In that case, Volcker's rate, creating higher 'real' rates, popped the bubble. At $800/oz. gold implied a US debt level of $8.9 Trillion, a level that did not exist until 2007. Guess what the gold price was Dec. 2007? Fair value. In 1980 US debt was only $900B. This means gold price overshot fair value by 10 times! Nowadays, that would imply $20,000/oz.

Fri, 01/30/2015 - 18:22 | 5727301 wet_nurse
wet_nurse's picture

Agree regarding opportunity cost etc when dealing in a rational world. I think the situation is beyond that. Thunderdome

Fri, 01/30/2015 - 18:24 | 5727302 wet_nurse
wet_nurse's picture

Agree regarding opportunity cost etc when dealing in a rational world. I think the situation is beyond that. Thunderdome

Fri, 01/30/2015 - 15:25 | 5726198 oudinot
oudinot's picture

Armstrong doesn't understand Roman history whatsoever. Probus was a fine general/Emperor that put Rome back together, along with Aurelian before Diocletian and after Gallienus.

Diocletian did not infalte the gold denarius by using less gold-Constantine did, Diocletian's successor , to fainance building Constantinople (byzantium previously)in the East (kinda like now) after 317 AD.

Diocletain did hurt the economy by declaring-an edict (law)- that every son had to do what his father did (ie if your father was a bricklayer, you became a bricklayer); the only exception was joining the Roman army.   This edict was the real damage to the Roman economy not 'gold inflation'

Fri, 01/30/2015 - 16:05 | 5726730 gcjohns1971
gcjohns1971's picture

What are you talking about?

Diocletian based his monetary system on the Nummus, a 5% silver-clad coin for common people, and then taxed it in income taxes (technically denarii communes tariff) at a multiple of its value. At the same time he produced higher value coinage in the Aureus and Argenteus at a loss.  The Aureus and Argenteus were used primarily by the rich as a vehicle for savings.  While the poor, with a greater portion of their income devoted to survival-related consumables, could not hold wealth in the Aureus and Argenteus.

To say that Diocletian did not *really* debase Roman coin is to admit a complete ignorance of Greshams Law.

So, simply, Diocletian produced a very debased low-value coin.  Gresham's Law says that bad money drives out good money.   You saw this in Russia recently when everyone rushed to the local appliance and car dealerships and spent any Rubles they could not convert to foreign currency.

Put simply it means that when there is both valuable money and debased money in a system at the same time, everyone will try to trade away the worthless stuff for real goods, but will hold onto the valuable money.

When the common man can only afford the debased money, this process transfers wealth from the poor, who must use a proportionally greater part of their income on consumables rather than durables - like valuable money, to the rich.

If you don't like the recent Russian example, then look at the Dollar.

What money do you trade away for daily necessaries?  What kind of money sits in a safe place to preserve your wealth?

What kind of money do you hide to keep safe forever because OFFICIAL DOLLAR POLICY REQUIRES IT'S VALUE TO RISE IN DOLLAR TERMS????

What Diocletian did is the very precedent to what Central Banks and governments around the world are doing now...

Let us not forget that Diocletian's system (predictably) resulted in the Feudal system (because Tax-Debtors were refused the right to travel and instead tied to their land).

Fri, 01/30/2015 - 14:10 | 5726203 Steroid
Steroid's picture

Inflation and hyperinflation are two almost unrelated animals

Fri, 01/30/2015 - 17:15 | 5727055 daveO
daveO's picture

Inflation=counterfeiting.

Hyperinflation=Loss of confidence.

Fri, 01/30/2015 - 14:14 | 5726213 SuperVinci
SuperVinci's picture

Who is this Marty Alarmstrong guy anyway???

 

Lame lame lame, plus bad writing- the kind you'd expect of a felon.

Fri, 01/30/2015 - 14:30 | 5726298 Haole
Haole's picture

...and he was one of the very few calling for sub-$1300 gold 3 years ago and getting laughed at for it.  Well, well...

 

 

Fri, 01/30/2015 - 14:58 | 5726442 malek
malek's picture

In contrast to the very few here calling for sub-$1000 gold 3 years ago and still getting laughed at for it?

Fri, 01/30/2015 - 15:15 | 5726526 Creepy Lurker
Creepy Lurker's picture

If it does that, I won't mind a bit. In fact, if it goes back down to $250 p/oz. I will buy with both hands.

Fri, 01/30/2015 - 17:17 | 5727069 daveO
daveO's picture

Better have the FRN's on hand. Banking holidays are what will push it down that far.

Fri, 01/30/2015 - 15:19 | 5726527 Haole
Haole's picture

Extremists!  jk  ;)

Fri, 01/30/2015 - 14:27 | 5726225 GoinFawr
GoinFawr's picture

When debt is 'money'

Deleveraging and Monetary Inflation are just Las Herramientas del Sistema

Fri, 01/30/2015 - 14:16 | 5726229 sessinpo
sessinpo's picture

Some people miss a simple concept (inclluding Armstorng). During deflation millions lose income, become jobless. Thus, with no money, everything you want to buy is inflated because you don't have the money to buy it at any price.

A historical look at deflation ater 1929 shows that most prices were down. But it didn't matter because no one had ANY money.

Fri, 01/30/2015 - 14:35 | 5726324 Thisson
Thisson's picture

And that's exactly what's supposed to happen - people's lack of ability to afford all the stuff produced via malinvestment is supposed to disappear, curing the overhang caused by the excess debt.

Fri, 01/30/2015 - 17:21 | 5727102 daveO
daveO's picture

The US gov. didn't have any either. So, they devalued dollars, in 1933, by 75% vs gold overnight. At the same time, they outlawed private ownership of gold, to try and get some back. People are far, far more broke (indebted) today than they were back then. So, the debt collapse, if allowed, would be far more painful. That's why they will print.  

Fri, 01/30/2015 - 14:33 | 5726305 cosmyccowboy
cosmyccowboy's picture

i was listening also and could not believe it when rush said the income inequality could be attributed to two words.... FEDERAL RESERVE!!!!

Fri, 01/30/2015 - 14:34 | 5726323 Brutlstrudl
Brutlstrudl's picture

Keep a shoe box full of small bills next to your stack

Fri, 01/30/2015 - 14:57 | 5726433 falak pema
falak pema's picture

Its called the great splits. 

I tell you the Bolshoi will go viral when inflation kicks out deflation. 

Fri, 01/30/2015 - 15:07 | 5726483 2muchtax
2muchtax's picture

I wonder if the old patterns apply with global reserve currency, fiat competitively devalued, nanosecond arbitration, etc.

Fri, 01/30/2015 - 15:16 | 5726521 gdpetti
gdpetti's picture

Well, it seems both have always been present. The deflation is for the large scale commodities and the inflation is everything else, like food and shelter, medicine and crap college costs.. in other words... the markets vs the consumers, and most of the inflation has been there for a number of years, only held in the central banks paying interest.... until recently with the negative rates, which seem like a plan to push all that tied up digital fiat out into the consumer market to drive up inflation. What will most banks do when the central banks no longer pay them to remain idle? will they plant crops on those lands like farmers when they no longer qualify for that govt subsidy? Imagine all those trillions parked in the central banks hitting the markets... seems like Last Call at the Bar.... one more for the road, and last man standing, 'please turn off the lights'.

Fri, 01/30/2015 - 17:28 | 5727121 daveO
daveO's picture

IMO, the counterfeit 'excess' reserves were built to weather the current deflationary wave, created by ending QE. The FED can continue to pay interest on these, thanks to CONgress, while they (bankers) front run all the necessaries (food and energy) to make money. The consumer is already over-indebted, but CONgress can always heap more US debt onto the funeral pyre.

Fri, 01/30/2015 - 18:19 | 5726599 Corma
Corma's picture

Until I can buy a decent steak from the grocery store for less than $10 and Mr. Yellen, along with her merry band of financial midgets, stop the "raise the rates" talk this summer and start refueling the helicopter, then I am afraid it will be more of the same.....black swans not included.

Better know what kind of insurance you need for when the flood does finaly arrive.

Cheers

Fri, 01/30/2015 - 15:46 | 5726658 cynicalskeptic
cynicalskeptic's picture

In the past 'money' supplies were either gold or silver - or backed (fully or fractionally) by precious metals.   A government could not simply expand the money supply if it did not have MORE gold or silver - unless it debased the money supply (lessened the amount of gold or silver in coins or lessened the ratio of printed money to gold on hand).

DEFLATION was a reduction in the actual money supply - often caused by people taking 'money' out of circulation.   It might be going elsewhere to pay for imported goods or be pulled from circulation by people unwilling to let bankks hold their savings.  It could be caused when a government requires banks to INCREASE their reserves - holding MORE gold in relation to the loans they have outstanding.  It could be caused by a massive market 'crash' where the value of financial instruments tanks - reducing the paper wealth held by people (and with that their ability to spend).  It could be caused by Gresham's Law - when people see debasement occurring and remove 'good' money from circulation (France under Law, or any other example of historical government debasement - or even when disparities arise between official exchange rations of gold to silve and market ratios).

In the past if a government wanted to INCREASE the supply of money they had to have more gold or silver to coin (or to be used to back paper money).  That was why FDR confiscated gold and revalued it.  People had taken their savings OUT of banks and wer literally burying it in mason jars - not trusting the banks which were failing.  FDR could not simply 'print' more money without having more gold on hand to back (fracionally) that currency. The loss of the Central America and the gold it carried was a contributing factor to a financial panic - NY banks were counting on those supplies to cover the credit expansion they had overseen.

Today governments face absolutely NO restraints on their ability to create more 'money'.  As long as people continue to accept the money they create - even as it buys less and less - they will create more.  And by law people HAVE to accept the money government creates even if eventually all commerce ceases because the medium of exchange is worthless.  You cannot FORCE people to sell goods for less than they are worth.  Price controls are signs of a failed monetary policy - and NEVER work.  They simply insure bare shelves and a thriving illegal secondary market. 

Having debased coinage 50 years ago (in 1964) we have an obvious sign in that old 90% silver coins are worth FAR more than their face value.  An old half dollar is worth over $6 in melt value. Even old all copper pennies are worth 3 cents in copper value.  We were lied to blatantly by Presidents that said this change away from silver meant nothing.  The 'temporary' closure of the gold exchange window was permanent - meant to stem the hemmoraghing of gold from the US to pay off trade defecits.

Instead of living within its means - and levying taxes to pay for the wars it fights, our government has simply created more and more money - misusing its position as the world's trade currency'.   But as the rest of the world awakens to the fact that they are getting screwed and are subsidizing the US's profligate spending, the US will be losing its ability to create money without consequence.  That is already happening as countries trade directly withoug using the $US as a medium of exchange.

INFLATION is already occurring in the $US - overseas and at home.  It is following past historical precedent.

You have DEFLATION in the costs of the things you do NOT need.  More expensive housing, cars, consumer goods..... people do not HAVE to buy these things and prices ARE dropping.  The great majority of the population curtails spending on 'unnecessary' items.

Yet we have INFLATION in the prices of things we NEED - food and energy.  We may be seeing a temporary drop in crude oil prices but that drop is due to political manipulation and is NOT filtering through to end users.  Electric rates continue to increase.  Heating oil remains high.  Gasoline is lower - but still far higher than it was a decade ago.  People are spending MORE on necessities, and earning LESS in terms of real buying power.

We are in a unique situation with the $US dominating the world economy.  That domination has postponed the normal outcome of the policies we have followed but will AMPLIFY the collapse when it comes.  When other nations decide that holding the $US means long term LOSSES in capital, they will (and have begun to) exchange those paper $US for TANGIBLE assets.  The Russians and Chinese are buying gold.  The Chinese are buying up mining companies and farmland all over he world, writing long term energy contracts when they cannot buy up supplies outright.  

Eventually the rest of the world will REFUSE to accept $US at ANY exchange rate - even when faced with US threats of war.   When that happens all the $US held outside the US will come rushing back to the US to buy ANYTHING Of perceived value.  Better to own US property or companies at even 10x book value if the alternative is holding $US worth NOTHING elsewhere.     Because even if the rest of the world refuses to take $US they will remain legal tender here in the US.  SO unless the US suddenly disavows $US holdings outside the US or blatantly defaults on its debt  (making it a pariah) spending those $$$ in the US will be the ONLY option left for foreigners holding them.

Prices will soar, and the US will be bought up lock stock and barrel - with most Americans priced out of the process and suffering the consequences.

Fri, 01/30/2015 - 16:28 | 5726769 gcjohns1971
gcjohns1971's picture

That is completely wrong.

Deflation is caused by multiple exclusive claims on the same asset.

Specifically, the bank promises you that you can withdraw 100% of your savings account, while at the same time they've loaned out 90% (or more) of it, promising that same exact money exclusively to someone else...who deposited it at another bank where the same thing was done, and so on, and so on.

Shortly, for every dollar you deposit in a demand-deposit account, the banking system creates 14 imaginary dolllars (assuming a 10% reserve requirement).

That means that you and fourteen other people supposedly have 100% exclusive ownership of the same dollar at the same time.

It is called 'Fractional Reserve Banking'.

Deflation is what it is called when one or more of the 15 of you discover that the other 14 think it is THEIR money, withdraws it, and causes the banking system to default on the other 14...

 

It is improper to describe money moving from one industry or product into another as 'deflation' because as one price is being driven down as money migrates away from it, another is being driven up because that money must go somewhere.

SAVINGS does not withdraw money from the monetary system.  It simply moves it into another sector of the economy - savings and investment.  The result is a DECREASE in prices for consumer goods, but a simultaneous INCREASE in price for investment assets - interest rates - the price of MONEY.   As interest rates go up, more people will subsequently choose to move that money back into the consumer economy by loaning to to entrepreneurs' who spend it on consumer goods.

Deflation is not what you call it when money moves.  Deflation is what you call it when money ceases to exist.  The only way it can cease to exist is if it were a lie in the first place.

.

Fri, 01/30/2015 - 16:28 | 5726846 gcjohns1971
gcjohns1971's picture

As to the rest of your post...also wrong. 

You don't have deflation in things that are discretionary, but inflation in non-discretionary items, as you've said.  When one of the 14 suckers in the banking system fails to repay a loan , the original guy who deposited that dollar can't get it back.  At the same time, one guy's loan is another guy's deposit.  Banks wrote more loans on the 'money' that they received from home-buyers.  When the home-buyer doesn't pay, then those other loans go bad too.  Then you get a credit collapse.

What you have is DEFLATION in things that people take out loans for... because the loans artrificially drove up the demand for those items.  When no more loans go into those items, the price has to come down for the market to move.

The government and Fed are standing in the way of this process.

But eventually that is what you will see, a crash in the prices of all the things people normally need loans for, until either the companies go out of business, or people can normally afford them without loans - or both

Fri, 01/30/2015 - 17:38 | 5727173 daveO
daveO's picture

Precisely, just look at how many more home purchases are all cash compared to 2006.

Read this;

"Deflation is what it is called when one or more of the 15 of you discover that the other 14 think it is THEIR money, withdraws it, and causes the banking system to default on the other 14..." 

Poor soul, that's a bank collapse.

Deflation occurs, naturally, thanks to productivity increases. The Bankster supported edu-ma-cation system has brainwashed everyone into thinking we should surrender all future standard of living increases (deflation) to them, so they can fly off to Davos and conspire how to enslave us even more! Back to work 'debt slaves', nothing to see here.


Fri, 01/30/2015 - 16:55 | 5726959 ucde
ucde's picture

I think the role of currency values is overplayed by the Austrian school, for the same reason this echo chamber is so vociferous: You think you've understood a massive, abstract system by reducing it to a simple dynamic. There is a confidence in this hypothesis that just comes from lack of perspective. 

Basically everything comes down to some cyclical repeat in the Austrian narrative: you can debase currency, but SOONER OR LATER you have to pay the piper. Well, as we've seen, 60 years can transpire before that piper's fees come due. Its not even clear NOW that we have to pay the piper, thats mostly a narrative imposed by the readership onto the economic facts. Yeah, the economic system is fuct, but with metal-backed money the system wouldn't exist AT ALL. The US for example would had to have ceased military expansion after the Korean war! So a whole epoch has effectively transpired within the 'window of permissability' that happens before sound money man comes knocking. What a poor explanation of cause and effect it is then. 

Keen, Vague, Hudson and others have put forward a model of economic cycles whereby the economic activity is dominated by one variable: private debt to GDP. The cycle that we are truly witnessing -- if this narrative is to be believed -- is a crisis in private debt, of the same kind that ancient civilizations (Sumeria) were known to go through. Basically, compound interest grows exponentially and people tend to overbower: this dynamic rules our lives far more than the Austrian narrative does. We have ~160% Private debt-to-GDP in America, which is around the level where Vague predicts economic recessions/collapses take hold.

Sat, 01/31/2015 - 05:46 | 5728381 smacker
smacker's picture

On the creation of passports, in the UK when Tony Blair went flat out to introduce the ID Card, it was initially described as the harmless panacea for all things. As part of the selling campaign thru MSM, the BBC/Sky News et al all wheeled out old ladies and assorted others to give 10sec sound bites: "I'd quite like an ID Card, it would make it easy for me to identify myself." They never made any mention of "why" they might need to identify themselves and to whom. The police asking for "your papers please"?

Now here's my point: during this campaign, I often said that once the ID Card was up & running it wouldn't be long before it was used to prevent people leaving the country if they had any unpaid parking tickets, taxes or court fines etc. I envisaged a device at the security control counter which you have to slot your ID Card into to carry out the checking of databases, much like we do today with credit/debit cards.

The incoming empty suit Cameron Coaliton government killed off the ID Card to show its credentials in support of privacy, freedom and liberty etc.

We now hear that this same Cameron government is to introduce exactly the check-list I predicted when anybody attempts to leave the country. The security apparatchiks at airports/ports are to carry out checks of all departing passengers and will prevent them leaving if they're "wanted" by the State for anything, including all those things I previously predicted. Airline Passenger Data and the police national databases will be used for this.

At this point, justification for introducing an ID Card becomes much easier.

We've come full circle.

Sat, 01/31/2015 - 10:12 | 5728550 Calculus99
Calculus99's picture

Smacker. I'm with you on what you said. The Americans are already it doing it, they won't issue a Passport to anyone that owes them money, or renew a present Passport. 

Many off the mugs that support all of the rubbish about 'it's for your safety' will wake up one day, then it will be too late. Trust the Politicians, what a joke. 

Sun, 02/01/2015 - 00:04 | 5730717 PiratePiggy
PiratePiggy's picture

There is also an exit tax, like leaving East Germany or Cuba, instituted to take the money of wealthy people that decide they would rather be citizens of another country instead of a citizen of the United States.

Sun, 02/01/2015 - 00:03 | 5730711 PiratePiggy
PiratePiggy's picture

"First The Deflation - Then The Inflation"

"First we take Manhattan, then we take Berlin "   - Leonard Cohen

 

https://www.youtube.com/watch?v=JTTC_fD598A

Mon, 02/02/2015 - 01:33 | 5733811 fr0thing
fr0thing's picture

"First the itching - then the swelling."

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