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From Mark Grant, author of Out of the Box

"The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand - a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers. Likewise, the economic effects of a deflationary episode, for the most part, are similar to those of any other sharp decline in aggregate spending - namely, recession, rising unemployment, and financial stress."

                         -Fed Chairman, Ben S. Bernanke

There was an argument, brought forth by several bright people; that the odds of Inflation or Deflation were about in balance for the remainder of this year. I think the needle has swung though and that Deflation, and perhaps serious Deflation, is just ahead of us. Every country in Europe is in a Recession with the exception of Germany but I predict that they are going to be dragged into the Club in the next quarter. The aggregate demand for goods and services is markedly declining all across Europe and the Target2 remedy to finance purchases is no longer providing the desired effect as financing only helps when demand is present and once demand has declined it makes very little difference as to the cost or availability of funding.

"Booms last longer because optimism is fed by slowly rising emotions involving hope and greed, which, because they are tempered by caution, can reach maximum intensity only over a long period of time and fulfillment only after prolonged effort. Busts are swifter because pessimism is fed by fast-flaming emotions such as fear and anger, which can be realized in a flash of destructive action."

                        -Robert R. Pretcher

The banking system, not just in Spain, is in tatters and the lending in the domicile of the banks is eroding as signified by all kinds of data released recently. Lending outside of the domicile has declined even further so that growth is curtailed by the availability of funding and the further away from the national home of any European bank; the worse the problem. This is then why I am so negative on the Emerging Markets as a safe place to park money. The lack of available funds will dampen growth so that the European recession spreads worldwide as contaminated by the problems of the European banks which, in aggregate, are about five times the size of the American banks and much more active in global lending.

“The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating.”

                        -Thomas Jefferson

We have recently witnessed a boom-and-bust cycle in Real Estate in Europe that overcame the banks of several nations including Ireland and Portugal. Now Spain is about to show up to be counted in my view. The issue all across Europe is that the sovereign does not have enough assets or capital to bailout their banks and many European banks are impaired; make no mistake. The first move was to lay off a lot of non-performing assets in securitizations at the ECB but the price always gets paid which will either be severe losses at the ECB requiring re-capitalization or the ECB handing back the collateral to the various banks which would probably bankrupt some of them especially in Spain, France and Italy. The ECB maneuver brought early success but now, as loans become due and as non-performance builds and losses must be recognized; the real truth forces itself upon balance sheets. There is a day when the auditors say, “Show me the money” and when it isn’t there the infamous “Oh My God” moment begins.

Now Bubba, when you use the screwdriver and release the air from the tires it causes all of those little lights on the dashboard to begin to flash and then if you try to drive the car it goes “bump-bump” down the road. No Bubba, get off of your knees and get your mouth off of the thingy; you cannot blow air back into the tires that way.


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Mon, 06/04/2012 - 09:11 | 2491313 RacerX
RacerX's picture

I'm not too sure the gov'ts/central banks will allow deflation as it will make their debt problems more severe.

Mon, 06/04/2012 - 09:15 | 2491325 Colombian Gringo
Colombian Gringo's picture

Deflation will destroy banksters  and their assets so as long as the criminal gang of 535 is in control, there will be inflation.

Mon, 06/04/2012 - 09:25 | 2491361 Freegolder
Freegolder's picture

At some point deflation wins though. First, they destroy their currencies.

Eventually, the inflation will be absorbed by just one asset, in its physical only form.

You can guess which one.

Mon, 06/04/2012 - 09:50 | 2491476 derek_vineyard
derek_vineyard's picture

The bond market is NOT signaling deflation.

In 2009 crisis: all maturity TIPS at one point yielded over 3% ...... today the yield is negative through 20 year maturities.

When those TIPS yielded > 3%, people were afraid of deeply negative CPI prints; that is not true today. Asset devaluation is not deflation.

Mon, 06/04/2012 - 10:46 | 2491870 Omen IV
Omen IV's picture

"When those TIPS yielded > 3%, people were afraid of deeply negative CPI prints; that is not true today. Asset devaluation is not deflation"

could you expand on this comment of asset devaluation versus deflation?


Mon, 06/04/2012 - 11:57 | 2492196 Spirit Of Truth
Spirit Of Truth's picture

The math is simple.  Do you expect the total level of debt to expand relative to goods and services or the opposite via defaults, restructurings, etc.  If the latter, then you should expect deflation.  If the former, then expect inflation.  I believe Robert Prechter (Elliott Wave Theorist) has been generally correct that the overwhelming force here is debt CONTRACTION relative to goods and services and price deflation should occur accordingly.

Mon, 06/04/2012 - 12:04 | 2492220 DaveyJones
DaveyJones's picture

Both can occur. Money continues to lose value. No one wants to hold it for long and it continues to slosh to the front end of things being held for shorter and shorter periods. Long term items contine to lose value. Short term immediate needs continue to inflate. Pounds the middle class from both ends 

Mon, 06/04/2012 - 13:18 | 2492502 Matt
Matt's picture

The same problem we had previously with Inflation now persists with Deflation.

If you use different definitions, you will have different meanings.

Does Deflation mean a decrease in CPI, or a decrease in the money supply?

I think defaults is a better measure of deflation then whether a bunch of consumer goods becomes slightly cheaper. I seriously doubt we're going to see $8 coffee makers drop to $4 or see milk fall to $1 per gallon, or $1.99 per gallon gasoline.

Mon, 06/04/2012 - 16:59 | 2493509 DaveyJones
DaveyJones's picture

nor are we going to see any serious long term "deflation" in vital depleting resources or things directly related to them - like food, energy, raw materials...  

Mon, 06/04/2012 - 09:29 | 2491373 kridkrid
kridkrid's picture

Deflation will destroy the criminal banksters and therefore the criminal gang of 535 who are beholden to the criminal banksters so as long as the criminal banksters are in control, there will be inflation.  Fixed it.

Mon, 06/04/2012 - 11:41 | 2492135 Fake Jim Quinn
Fake Jim Quinn's picture

Inflation hurts the banks as much, or more, as deflation. Inflation favors debtors, not creditors. Deflation favors creditors.

But your comments about our politicians is correct

Mon, 06/04/2012 - 18:35 | 2493855 hawks5999
hawks5999's picture

The banks aren't the creditors though... they are likely net debtors.

Mon, 06/04/2012 - 09:18 | 2491334 rsnoble
rsnoble's picture

They don't control everything like you think. Esp when thing are taken to the brink. It's not like the gov't can just say "we're not going to have deflation" and presto. The whole system is fucked up and there will come a point where central bankers will get their collective asses ran over. Granted QE3 might cause a pop in the markets but it will be less effective and it won't last. It's coming down, I suspect the rich fucks are running around like chickens with their heads cut off behind the scenes trying to hold it together as long as possible while they figure out how to position themselves meanwhile we get raked over the coals.

Mon, 06/04/2012 - 09:26 | 2491367 Sockeye
Sockeye's picture

At some point this is beyond CB control, ie when sovereigns no longer have enough capital or assets to pledge for extend and pretend.

Mon, 06/04/2012 - 09:41 | 2491426 LawsofPhysics
LawsofPhysics's picture

They stopped having real assets back in the 70's.  Since then "debt" has been considered an "asset" and has in fact been "pledged as collateral" for more debt.  Where the fuck have you been?

Mon, 06/04/2012 - 09:54 | 2491528 Sockeye
Sockeye's picture

Yes, and now they are running out of even debt "assets". Jig is up if they can't grow debt.

Mon, 06/04/2012 - 11:20 | 2492045 TaxSlave
TaxSlave's picture

"Full faith and credit" means ME getting stuck with the debt, with gun-toting jack-booted government thugs as the bill collectors.

Only one problem with that.  It's not my debt, and I'm not paying it.  Hunkered down in survival mode, nothing to steal here, move along. 

Mon, 06/04/2012 - 09:13 | 2491318 TSS
TSS's picture

IMO the best indication for deflation in the future is the price of gold vs the historical price of gold.

As Jim Rogers says, "When everybody is on one side of the boat it's good to be on the other side".

Mon, 06/04/2012 - 09:29 | 2491378 Hippocratic Oaf
Hippocratic Oaf's picture

IMO, the best indicator of deflation is in NYC.......which I have not seen yet. prices are still hi.

Mon, 06/04/2012 - 09:31 | 2491385 Jolly.Roger
Jolly.Roger's picture

If the boat is capsizing / sinking is makes no difference what side you are on.

Mon, 06/04/2012 - 09:18 | 2491326 DormRoom
DormRoom's picture

The real estate bubble was allowed to inflate as to mask the effects of exporting manufacturing jobs from the US & Europe to the East.  Economies replaced manufacturing jobs with construction jobs.  Now there are no jobs.

Mon, 06/04/2012 - 09:21 | 2491330 realtick
realtick's picture

Deflationary Depression - fixed it for ya


Mon, 06/04/2012 - 09:18 | 2491336 LawsofPhysics
LawsofPhysics's picture

LMFAO!  Like we have a free market where price discovery is allowed, bullshit.  Producers cutting prices can also be due to competition.  In a truly free market competition is a good thing.  Fascists really hate competition and insure that their companies get bailouts by raping the taxpayer.

Mon, 06/04/2012 - 10:06 | 2491621 aerojet
aerojet's picture

There's not much competition--every big industry went to government and got the laws and regulations fixed up so that real competition is pretty much impossible.  There's a little here and there, of course, because we have to keep up appearances, but it's not like I could just decide to start a cable tv company or a cell phone company and really try to compete on price. It ain't gonna happen.

Mon, 06/04/2012 - 10:42 | 2491695 LawsofPhysics
LawsofPhysics's picture

Fuck television.  Pretty soon the only thing people will care about is food and fuel and you would be suprised what you can eat and burn.  Same as it ever was.

Mon, 06/04/2012 - 09:19 | 2491342 dwdollar
dwdollar's picture

Deflation is what happens when bankers don't print enough money.

Mon, 06/04/2012 - 09:26 | 2491366 Debugas
Debugas's picture

bankers do not print money for free - they ask for obligations to repay back.

If nobody is willing to borrow bankers are powerless to print

Mon, 06/04/2012 - 09:28 | 2491369 Sockeye
Sockeye's picture

Yep, and we may be there now.

Mon, 06/04/2012 - 09:58 | 2491561 pods
pods's picture

The $1.5 trillion in excess reserves backs you up on that.


Mon, 06/04/2012 - 10:07 | 2491631 aerojet
aerojet's picture

Well, good.  It's about time the banksters had to be on the hook for something since they created this disaster in the first place.  Idiots.

Mon, 06/04/2012 - 09:44 | 2491435 dwdollar
dwdollar's picture

To get Average Joe to borrow, yes, he needs something like a negative interest rate at this point.

However, there's more than one way to print money. QEx being exhibit A...

Mon, 06/04/2012 - 10:08 | 2491640 aerojet
aerojet's picture

The farm animals like us are out of borrowing capacity and really, who the hell wants more debt right now with so much uncertainty?  I don't want to be chained down at all.  So then .gov steps in and runs gigantic deficits, which just prolongs the problem and makes the eventual solutions that much harder to implement. 

Mon, 06/04/2012 - 10:49 | 2491887 tarsubil
tarsubil's picture

If interest on loans is lower than inflation, people will borrow.

Mon, 06/04/2012 - 11:01 | 2491951 Overfed
Overfed's picture

The bastards won't loan any money. At least, not to the little guy. Credit cards don't count.

Mon, 06/04/2012 - 13:24 | 2492541 Matt
Matt's picture

This mess we are in is all the banks' fault. When times were good, my credit limits on my cards kept increasing automatically.

Now, when growth has slowed or even stopped, they aren't increasing my limits anymore.

They need to increase everyone's "debt target' so everyone can borrow more, to keep growth on track. If you just lend people more money, they can use that to make their mortgage payments, and to buy more goods.

just in case someone doesn't get it: /sarc

Mon, 06/04/2012 - 09:19 | 2491344 Cursive
Cursive's picture

If The Bernank seriously thinks deflation is caused by a drop in aggregate demand, he should be stripped of all of his "economics" degrees.

Mon, 06/04/2012 - 10:20 | 2491724 Ricky Bobby
Ricky Bobby's picture

In the age of all encompassing states there needs to be an intellectual justification. Keynes that vile Fabian elitist sure delivered it. I say we pull down any statue or picture of that serpent.

Mon, 06/04/2012 - 09:22 | 2491349 LawsofPhysics
LawsofPhysics's picture

Reward savers and productive labor?  Did this group of the population suddenly buy some politicians?  I think NOT.

Mon, 06/04/2012 - 10:16 | 2491697 Ricky Bobby
Ricky Bobby's picture

A corrupt society does not give a fuck about savers and productive labor, unless of course you mean slave labor. They will be allowed to save a frew bread crumbs for hard times.

Mon, 06/04/2012 - 10:42 | 2491847 LawsofPhysics
LawsofPhysics's picture

That is the point, glad you were paying attention.

Mon, 06/04/2012 - 09:23 | 2491354 fonzannoon
fonzannoon's picture

If deflation was unavoidable why not go short the martket and let the chips fall where they may. The banks etc. may go under but they would make a killing basically going long their own demise.

Mon, 06/04/2012 - 09:28 | 2491370 Debugas
Debugas's picture

deflation is always avoidable - you just have to start printing money and giving it away for free (i emphesize - not lending but giving away for free)

Mon, 06/04/2012 - 09:31 | 2491387 fonzannoon
fonzannoon's picture

Agreed, but outside of Bush in 2002 I think, no one has ever sent me a check.


Mon, 06/04/2012 - 09:46 | 2491449 GoldenTool
GoldenTool's picture

See Bush just didn't go big enough.  Obama needs to go full tilt with 20-30k per adult.  Would be about 6t if my math is correct.  Would fix the housing and jobs situation I bet.  Not to mention instant re-election.  Down arrow away, heh.

Mon, 06/04/2012 - 10:17 | 2491705 LawsofPhysics
LawsofPhysics's picture

No, Bush went just as big, it just "went" to different cronies. Some were the same (financial sector).

Mon, 06/04/2012 - 09:24 | 2491357 CreativeDestructor
CreativeDestructor's picture

They'll need to monetize about 20-30 trn to avoid deflation. But you gonna have inflation and deflation same time. Huge inflation in digital money. Deflation in hard asset backed money. So they print but states go bust in hard asset terms. Even in paper money terms. Even that they won't be able to print fast enough.

Mon, 06/04/2012 - 12:16 | 2492254 Winston Churchill
Winston Churchill's picture

The States are already bust.

ZIRP has killed them all as well as any corporation

that still has a defined benefit pension scheme.

There are  Huge contingent liabilities in addition to

the National ones that are being fudged away right now.

If true GAAP were being used,the game would already be over.

Mon, 06/04/2012 - 09:24 | 2491358 Jesse
Jesse's picture


Was the author referring to Bill Clinton (Bubba) or had he intended to speak to the former German central bank (Buba) which tends to heavily flavor the ECB?

Mon, 06/04/2012 - 09:28 | 2491371 Inspector Bird
Inspector Bird's picture

Wasn't Jefferson a perpetuator of debt?  He died in debt, he lived most of his life in debt.  He was a voracious speculator of land, and rarely held cash or assets of any kind.

I suspect inflation will occur before deflation.  Although it's hard to tell just how significant inflation has been, recently.  We've been in a deflationary environment and seen none to speak of, which means we've been running a real inflationary rate of what?  6-12%?  Possibly.  Even though CPI is showing low inflation rates, and Shadow Stats is showing about 10%, my guess is real inflation is much higher.

All the money they've created to run these deficits has to create a firestorm at some point, even with the fall off in aggregate demand.  In all likelihood, QE3 is right around the corner.

Mon, 06/04/2012 - 09:34 | 2491399 LawsofPhysics
LawsofPhysics's picture

ZIRP is QE!   No interest essentially means that there is no "cost" associated with capital creation.  If you believe that (especially on a planet with hard limits and finite energy) then there are a few bridges I have for sale that might interest you.

Mon, 06/04/2012 - 10:25 | 2491746 aerojet
aerojet's picture

It would be pretty ironic if Thomas Jefferson, hero to all libertarians turned out to be the prototypical Donald Trump, living off of what amounts to fraud and can-kicking.  It's all about who gets the first use of that new money.

But what I think you will find if you look is that TJ died in debt because back then, people in government had to pay for their own expenses and did not get reimbursed the way they do now.  Public office was a hardship.  I think it should be again.  So the truth is that TJ was pretty selfless and could have just decided not to bother since it didn't help him financially.  He must have known something about legacy and what is really important, though.

Mon, 06/04/2012 - 13:35 | 2492555 GoinFawr
GoinFawr's picture

Well said. Heh, wouldn't it be even more ironic if the only Gov't of 'State' stature in North America to run 17 (consecutive?) surplus budgets was/is deemed hardcore 'socialismist' by those very same people? (CCF Sask.)

Mon, 06/04/2012 - 13:34 | 2492600 Matt
Matt's picture

The version I heard, when his father-in-law died, he and his brothers-in-law divided up the property according to the will before paying off the outstanding debts of his father-in-law. As a result, each of them then owed the bankers an amount equal to the total debt owed by the deceased. The amount was quite large, and as a result, he was in debt for life.

His excuse for not freeing his own slaves was that he couldn't afford to, because of the debt. So he was "anti-slavery" but "couldn't afford it".

Mon, 06/04/2012 - 09:30 | 2491374 Rynak
Rynak's picture

repeat after me: the money is not the economy. You can have one thing inflating and the other thing deflating. What is it about basic school logics (there isn't inflation or deflation. There is SOMETHING inflating or deflating), that is so hard to understand for economists and investors? And those are then called "experts" when they can't even distinguish between attributes and things?

Mon, 06/04/2012 - 10:26 | 2491753 aerojet
aerojet's picture

They don't care--it's all about what they are trying to accomplish for their preferred set of winners.

Mon, 06/04/2012 - 09:29 | 2491376 Poor Grogman
Poor Grogman's picture

Deflation frustration liquidation interrogation incarceration humiliation probation jubilation.

Same old, same old.

Mon, 06/04/2012 - 09:29 | 2491377 Currency is Debt
Currency is Debt's picture

Zero Hedge. One big happy family. United by our hate of Giant Squids and NWO

Mon, 06/04/2012 - 09:30 | 2491379 midgetrannyporn
midgetrannyporn's picture

Deflation will not be permitted on the asset books of the billionaires and bankers. They don't give a flying fuck about the rest of us.

Mon, 06/04/2012 - 09:34 | 2491398 Raymont
Raymont's picture

Exter may be proved right...

"This will be a deflationary collapse rather than an inflationary blow-off because creditors in the debt pyramid will move down the pyramid out of the most illiquid debtors at the top of the pyramid—junk bonds, failing banks, SandLs and insurance companies, Donald Trump, and Campeau. [Trump has survived until now, 1998, but Long Term Capital Management and other ailing hedge funds fit the same bill. —Ed.] Creditors will try to get out of those weak debtors and go down the debt pyramid, to the very bottom: currency (dollar bills), even though they pay no interest. Next above currency are Treasury bills, issued by the government and backed by the Federal Reserve, which supports the market through its open market operations. They are by far the largest component of Reserve Bank credit, so are really as safe as currency notes, plus they pay interest. Still, you can’t buy anything with Treasury bills; you have to liquidate the bills to get money of some sort to buy something"

Great read BTW for those that haven't already.

Mon, 06/04/2012 - 09:35 | 2491405 Currency is Debt
Currency is Debt's picture

Brothers I sometimes feel like the global trade world since atleast 1600s and the mass slavery of Africans has been morphing ever since. It is like when they ended physical slavery they turned their attention to economically enslaving all the world's population literally until they have everyone on earth tied with an interlocking chain and they are in control, as we are reduced to total powerlessness.  

Mon, 06/04/2012 - 09:41 | 2491427 Raymont
Raymont's picture

I see where you are going with your post BUT don't be so fucking pessimistic. It sounds like you gave up. 

The system is flawed no doubt, but individuals with intelligence, will and human capital can not be stopped.

Mon, 06/04/2012 - 09:47 | 2491466 Currency is Debt
Currency is Debt's picture

I hear you and you are correct. I did not say at any stage we should give up. Just stating the battle. How did so few motherfuckers succeed in lording over billions? - it is seriously fked up.

Mon, 06/04/2012 - 13:09 | 2492449 Jumbotron
Jumbotron's picture

Show me in human history this has ever worked for long.......

The system is flawed no doubt, but individuals with intelligence, will and human capital can not be stopped.

You're just another idealistic, theorist....albeit on the Libertarian side.....but still just as mistaken as any Keynesian or Liberal utopian.

Mon, 06/04/2012 - 09:50 | 2491492 IrritableBowels
IrritableBowels's picture

Economic enslavement = undercover physical enslavement.

Mon, 06/04/2012 - 10:28 | 2491760 aerojet
aerojet's picture

Right, because economic freedom is the only useful freedom.

Mon, 06/04/2012 - 09:36 | 2491409 FieldingMellish
FieldingMellish's picture

Deflation in some things, disinflation in others and inflation in still others. Its biflation all 'round. This ain't your grandpappies depression.

Mon, 06/04/2012 - 09:43 | 2491436 Raymont
Raymont's picture

Inflation in the things we need, deflation in the things we own (less gold, silver, diamonds, etc.)

Mon, 06/04/2012 - 09:51 | 2491500 kridkrid
kridkrid's picture

Inflation in the things you need... Deflation in the things you own, including your labor... increasing taxation, decreasing services for said taxation.  We will be on this spin cycle until the whole thing collapses... we will then wish we could go back to the spin cycle (most, not all).

Mon, 06/04/2012 - 09:37 | 2491411 DavosSherman
DavosSherman's picture

Jesus f#$*%! Christ---you can not have "deflation" with a $5trillion actual deficit.

Fucking take a minute and think about that.

When the system crashes government revenue tanks---the mask is then off the beast and you have a Ludwig Von Mises currency crisis.  

Show me one fucking currency crisis that was deflationary?

Mon, 06/04/2012 - 09:42 | 2491430 Currency is Debt
Currency is Debt's picture

Sharp as a razor

Mon, 06/04/2012 - 10:02 | 2491591 kridkrid
kridkrid's picture

I watched a snail crawl along the edge of a straight razor. That's my dream; that's my nightmare. Crawling, slithering, along? the edge of a straight razor... and surviving.

Mon, 06/04/2012 - 09:46 | 2491457 LawsofPhysics
LawsofPhysics's picture

Exactly.  many "traditional" business school morons still believe that you need money velocity to increase in order to have inflation.  Bull fucking shit and every single currency collapse shows otherwise.  

"Credits will do fine."  "No, they won't, I need something more real"

Mon, 06/04/2012 - 10:00 | 2491577 Poor Grogman
Poor Grogman's picture

A nice dose of controlled deflation never went astray when the lambs were getting all rumored up, and indignant. Just enough to soften them up and bend them over for the next round of QE treatment, or more government controls, or even better, both.

Hell if they are smart and don't let a stray ALGO get out of control they could keep the little "money flation" game running for years..

Mon, 06/04/2012 - 10:03 | 2491606 spooz
spooz's picture

Tell that to Japan.  

Mon, 06/04/2012 - 10:15 | 2491692 pods
pods's picture

I would argue that most, if not all currency crises arose due to the inability to pay off crushing debts.

The printing was the solution, not the cause.  The cause was a potential collapse in credit money due to cascading defaults.

And yes, you can have deflation with a 5,10, or 20 trillion $$ deficit.  It all depends on whether the aggregate debt is rising or not.

If it is falling, then lookout.  When the debt supply starts to contract, it is self reinforcing.  Defaults beget defaults.

Exponential expansion of debt is all you need to look at in a debt money system.


Mon, 06/04/2012 - 10:37 | 2491814 kridkrid
kridkrid's picture

I see you've punched in for the day :-).  

Inflation vs. deflation is a meaningless argument, really.  It's a blip on the radar screen during the last gasp of the current monetary system, but has no real impact in the long term.  The conclusion is the same... the absolute destruction of the current system to be replaced by something else.

Mon, 06/04/2012 - 11:00 | 2491948 pods
pods's picture

Haha, long weekend but I finally got the garden in.  Better late than never I guess.  Had to as we just used our 45th and last quart of sauce last night.

Maybe HH will allow me to make the sauce when it comes time for sleepover FEMA camp?

I would really love to see deflation in the old time sense.  Thing becoming cheaper due to productivity increases, instead of seeing all that increase stolen by the fractional reserve practitioners.  Past labor becoming worth more. Easier to live day to day, instead of trying to stay ahead of the inflationary snowball behind us, like now.

Oh well, a guy can dream, right?


Mon, 06/04/2012 - 11:46 | 2492151 Milestones
Milestones's picture

Having at one time over 20 acres of produce in' I can tell you I'd rather be two weeks late than an hour too early with my plants.          Milestones

Mon, 06/04/2012 - 11:22 | 2492050 justinius1969
justinius1969's picture

Correct sir. IMHO debt deflation is inevitable.. No amnount of money printing can offset thwe wave of defaults that is about to be unleashed on the world.

Mon, 06/04/2012 - 09:40 | 2491423 realtick
Mon, 06/04/2012 - 09:45 | 2491447 DavosSherman
DavosSherman's picture

Prechter is a fucking moron!

Mon, 06/04/2012 - 10:13 | 2491681 realtick
realtick's picture

Fade yourself.

Mon, 06/04/2012 - 09:44 | 2491441 mess nonster
mess nonster's picture

Injecting liquidity (free money to banks) isn't working. Europe is case in point. How many times have I heard/read here that we "don't have a liquidity problem, we have a solvency problem"????

Despite the massive liquidity injections by CB's everywhere, led by the FED, the specter of deleveraging not only looms, it looms ever larger and larger. Credit markets, despite the massive perpetual injections of free money, are barely twtiching. The massive credit extensions given to governments and banks have done nothing except hasten their bankruptcy.

Insolvency and bankrupcy are words synonymous with deflation. If tomorrow QEx were to be unleashed with unbated fury, the tidal wave of liquidity would only serve to drown all remaining players in an ocean of insolvency and unrepayable debt.

Trying to fix insolvency with more debt is like trying to cure a heroin addict with an overdose. The good news is- they'll never use again.


Mon, 06/04/2012 - 09:44 | 2491442 Arnold Ziffel
Arnold Ziffel's picture

It;'s election year...forget 'deflation' or 'austerity'....

There shall be printing and lots of it imo.

Mon, 06/04/2012 - 09:56 | 2491549 DavosSherman
DavosSherman's picture

While no one wants a crash during an election year, the bottom line is the goberment bills have to be paid with revenue.  Revenue plus selling pretty paper (bonds).  Or, revenu plus selling pretty paper plus "selling" (read: printing) pretty paper to the "Fed".

Printing, as we all know is inflationairy as it increases the number of Bernanke Bucks out there which reduces their value which makes shit cost more.

Soon these Bernanke Bucks will be so worthless that even houses will be priced at obscene levels.

A new "Dawler is coming.  Bring us $1,000,000,000.00 old "dawlers" and you can have 1 new "dawler".

Mon, 06/04/2012 - 10:21 | 2491730 pods
pods's picture

There is no printing.  There is borrowing.  

Every single FRN of QE was borrowed.  

The FRN is a debt note.


Mon, 06/04/2012 - 10:43 | 2491856 DavosSherman
DavosSherman's picture

Slavery is closer than borrowing----when you take out a loan you make a decision to enter in debt, when they print they shove that debt up your ass and your kids ass and their kids asses.

Mon, 06/04/2012 - 10:52 | 2491907 pods
pods's picture

I agree that is when they borrow, it is on the backs of all of us, born and unborn.  But they are borrowing.

In my view, if they actually printed (sans debt) it would hasten the debt collapse, as you would have an imbalance between the currency and debt, which would hasten the collapse in aggregate debt load.

There is a reason why not a single penny of our national debt has been paid since (I think) Ike.  

Because that is our money supply.


Mon, 06/04/2012 - 13:42 | 2492628 Matt
Matt's picture

Actually, you have it half right:

When the Federal Government runs a deficit, the money is borrowed into existance.

When the Federal Reserve buys stuff, the money is printed into existance.

With Quantitative Easing, you get 2 $1 FRNs created for every $1 of deficit:

$1 borrowed and $1 printed. The best of both worlds.

Mon, 06/04/2012 - 14:33 | 2492748 pods
pods's picture

Not following.  My view of how it goes:

Gov mints a bond, sells to FED.  Fed prints up FRNs, exchanges for Bonds.  Thought this was a 1 for 1?  Both sides still balance (except interest).  As gov pays off bonds, debt contracts again.

Same with FED buying MBS's etc.  Except that FED prints up new FRN's to buy existing debt, which would lead to more FRN's, but since payment on the debt the FED buys would extinguish the FRNs, this gain is temporary.


edit:  Just had a thought about this.  The FED would in fact be printing up the difference (meaning both sides don't balance) between what it paid for an MBS bond for example,  and the total amount that is actually paid off, correct? Say they buy a bond for 100 and only receive back 70, that 30 bucks could be forgiven by the FED and that 30 would actually have been printed money.

Mon, 06/04/2012 - 18:24 | 2493816 Matt
Matt's picture

As I understand it:

1. The Federal Reserve is the bank that holds the money on behalf of the Treasury.

2. Normally, when the Federal Government wants to spend more than it has, the Federal Reserve sells a bond to the Primary Dealers by auction. The Primary Dealers can then keep them or flip them for a profit as market makers to the secondary market. The proceeds from the auction go into the equivelent of the Treasury's Checking account at the Federal Reserve

3. During Quantitative Easing, the Federal Reserve waits a week or more, then buys those bonds back from the Primary Dealers for a slightly higher price than the dealers paid at the auction. The Federal Reserve creates the money to buy the bonds out of thin air by pressing a key on a keyboard.

4. When an interest payment is needed or debts are rolled over, it simply goes into the general pool of expenses, and if there is a deficit, the process is repeated from step 1.

Again, this is just my understanding of what seems to be a convoluted process.

Mon, 06/04/2012 - 10:33 | 2491790 aerojet
aerojet's picture

I wouldn't say it is quite that bad, but I figure we will get up one morning and find out that the $100 is the new $1.  That's the final ripoff of everyone who didn't run up huge debts, that's the moral hazard play, so that's what they will do to solve the problem.  It might not work out the way they expect, but that is what they will do because anything else burns the rich and we know that will never take place barring a revolution.

Mon, 06/04/2012 - 10:54 | 2491917 DavosSherman
DavosSherman's picture

If it happens that fast.  These revaluations hardly ever do.  By the time they admit defeat, hash out debt with 195 other countries, most people have lost it all.

Then it doesn't work the first time.

So they do it again.

Maybe by the third itteration it works.

Remember too what Egon Von Greyerz says, this is the first time in history that all countries are going broke TOGETHER!

Mon, 06/04/2012 - 12:12 | 2492242 JimS
JimS's picture

That happened while I was in Vietnam in  late 1968/early 1969 with the MPC( military payment script- don't ask me how they "script" out of the "C"). We fell out for formation one morning and we were ordered to bring our "current" MPC for some "new" MPC. You had to bring it all in, or it was worthless. The Vietnamese were totally devastated, as they were using our MPC instead of their currency the Dong. The locals were at the barbed wire fences throwing bundles of the MPC over the fence begging us to help them, as they were instantly broke. All we could do was throw the bundles back over the fence, as we couldn't cash it in. The swap was limited to no more than what you made x2. It was the most secret thing that I saw in the 2+ years I was in-country.

Mon, 06/04/2012 - 10:04 | 2491611 CommunityStandard
CommunityStandard's picture

Though we'll be in "deflation" for a period of time, prices aren't going to react accordingly.  People will continue to earn less, unemployment checks will run out, and there will be less jobs.  Here is my best guestimate of short term pricing changes after looking how people are going to spend their nickels.

Housing: prices down.  Really, what first time buyer can afford a house?  Sales are just churn.  Plus there's all that shadow inventory.
Cars: prices down.  Channels are already stuffed.  Now these dealers need to sell.
Consumer staples: Unchanged or up.  People still need to buy their milk and bread.  SNAP is still subsidizing.
Consumer electronics: Unchanged or down.  We've finished the jump to flat screens, smart phones, and tablets; if someone really wanted one, they already have it.  Apple could be the exception with their cult-like following, but the battery is what's keeping the tech from getting to the next level of processing power.
Consumer entertainment/discretionary: Up.  Going to the movies and the local restaurant is the new family vacation.  What's going down are resorts and European vacations.
Education: Up.  If people don't have jobs, they'll go to school as long as the government keeps paying for it.

Mon, 06/04/2012 - 11:15 | 2492006 Omen IV
Omen IV's picture

in neo-capitalism era the control of "rents" ie: utilities/cable/apartments/gasoline/fees/tolls/tel - all can be increased via control positions to yield substantial profits in face of decline in discretionary income by expansion of extraction process by major business entities - so why would you believe this will be stable prices for these services / products?

Mon, 06/04/2012 - 10:05 | 2491616 Stock Tips Inve...
Stock Tips Investment's picture

Inflation and deflation are prices linked phenomena of monetary factors. Not all fall in prices is deflation. Its consequences and solutions are different in each case. If it bursts a bubble in one sector, that sector prices will fall, although this is associated with a process of deflation. I think what is happening in Europe that are entering a process of economic depression. Unemployment rises, incomes fall and aggregate spending in the economy decreases. Up to where? to reach their true reality.

Mon, 06/04/2012 - 10:08 | 2491639 Shizzmoney
Shizzmoney's picture

Deflation is already happening in the form of gas prices, down to 3.49 here in MA.  And it's already happened in terms of televisions and housing.

Until incomes go up, deflation will also rise.


Mon, 06/04/2012 - 10:10 | 2491651 spooz
spooz's picture

wonder how long before we see deflation in rents? so many vacant units, will they eventually be up for rent?

Mon, 06/04/2012 - 10:54 | 2491922 DavosSherman
DavosSherman's picture

that isn't deflation

Mon, 06/04/2012 - 10:09 | 2491644 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

The unwinding of $1,500,000,000,000,000.00 in derivatives will initially overwhelm even modern day bankers.  Think LTCM 1998 X 100.

I am Tuco

Mon, 06/04/2012 - 10:15 | 2491679 DanDaley
DanDaley's picture

"The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating.”


                        -Thomas Jefferson


While there is much to appreciate about Mr. Jefferson, his personal debt and its perpetuation helped keep his 130 slaves in bondage -and then sold off upon his death to pay his debts instead of being freed.

As the founder of the Democratic party, though, this is typical judge-my-intentions-not my-results behavior; do as I say, not as I do.


Mon, 06/04/2012 - 10:38 | 2491818 aerojet
aerojet's picture

You're judging someone through a modern lens.  I wouldn't do that because it messes with your conclusions.  It's a common fallacy amongst the left.  Jefferson was no different than any other land owner during that era. 

Mon, 06/04/2012 - 13:54 | 2492662 Matt
Matt's picture

"Jefferson was no different than any other land owner during that era. "

Unlike the other land owners, he was saying that owning slaves was wrong, while he owned slaves. All because it is better to be a hypocrite than to be poor.

Edit: actually, if Thomas Jefferson had freed his slaves and went bankrupt, would he have in turn become a slave? Could he become a slave while being President? Could he discharge his own debt if he was President at the time?

Mon, 06/04/2012 - 10:45 | 2491865 Vince Clortho
Vince Clortho's picture

Logical fallacy.

Slaveholder status has no bearing on Jefferson's ability to recognize and repudiate the Central Banksters financial scheme and its impact on the victims.

Mon, 06/04/2012 - 14:27 | 2492826 DanDaley
DanDaley's picture

Not necessarily.  Jefferson's inability to live within his means to the extent of having to sell his slaves rather than make provisions for their liberation, while at the same time chastising central bankers, bespeaks a hypocritical attitude which has survived in tact in his political descendants to this day -the same people with whom we are most familiar around here.   

Mon, 06/04/2012 - 10:18 | 2491712 Amish Hacker
Amish Hacker's picture

Inflation? Deflation? Do the sheep really care which slaughterhouse they're led to? That's what it feels like is going on, anyway, and I saw that the Daily Special in the Fed cafeteria today is listed as "Broken Leg of Lamb." 

Mon, 06/04/2012 - 10:41 | 2491834 kridkrid
kridkrid's picture

+/- 1  -- you are absolutely correct... it matters not in the big picture.

Mon, 06/04/2012 - 10:51 | 2491904 css1971
css1971's picture

Yes they do.


If the numbers are bigger they are wealthier. No really. I've tested this on several people. The numbers must always get bigger.

Mon, 06/04/2012 - 11:10 | 2491994 Amish Hacker
Amish Hacker's picture

Right, and the Fed amp goes to eleven.

Mon, 06/04/2012 - 10:51 | 2491903 DaveA
DaveA's picture

Summary: While heroically defending the world against the evils of deflation, Ben Bernanke doesn't realize that we could have deflation and hyperinflation at the same time. The two are not mutually exclusive. Investors might decide to liquidate everything for cash, while no longer seeing paper money or government bonds as "cash".

Mon, 06/04/2012 - 10:52 | 2491913 billsbest
billsbest's picture

Weaker Gold & Silver Prices Spurs Stampede to Physical Coins

Did someone say "deflation"? All aboard!

Mon, 06/04/2012 - 12:02 | 2492131 WhiteNight123129
WhiteNight123129's picture

Hi Guys, I want to debunk this inflation deflation debate once for all. Here is the most non sustituable commodity, a price index not subject to speculation, with no variation in demand and no variation in supply.... Here is the arbiter... Processed Tobacco price. Tobacco shares did perform as well as Gold in the last 10 years, but pays dividend. Check this post. This is the Ubber-Asset, reprices inflation but has a put on delfation (the tobacco companies do not lower prices in deflation environment). However the processed tobacco index proves there is inflation.



Mon, 06/04/2012 - 11:48 | 2492162 JimS
JimS's picture

Donald Trump's "businesses" have went bankrupt several times over the last 20+ years, and it hasn't hurt him one little bit.

Mon, 06/04/2012 - 13:04 | 2492438 SamAdams1234
SamAdams1234's picture

Borrow a $100,000 -- thats the borrower's problem

Borrow $1,000,000,000 -- that's the bank's problem.

Welcome to Trump Atlantic city.

Mon, 06/04/2012 - 14:27 | 2492831 MrBoompi
MrBoompi's picture

How you define inflation determines your definition of deflation.  All of the extra credit (debt) that's been created and dispersed throughout the world can never be paid down without deflation (or default).  A system where the pendulum can only swing in one direction is doomed to failure from the start.

What should we fear the most?  A deflationary recession or seeing what these bankers and politicians are doing to keep the status quo?





Mon, 06/04/2012 - 15:45 | 2493141 AlamoJack
AlamoJack's picture

DEFLATION is YUMMY if you're a BUYER - NOT so if you're a seller.  I need a new USED tractor and diesel pickemup truck.  Keep that non-GMO corn and squash a-comin' Chico!

Mon, 06/04/2012 - 21:46 | 2494430 Red Sole Shoes
Red Sole Shoes's picture

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Red Sole Shoes's picture

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Red Sole Shoes's picture

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Tue, 06/05/2012 - 00:31 | 2494819 honestann
honestann's picture

Ask yourself... or Bernanke... or anyone:

If nobody had debt, how would deflation be "bad"?

That's correct, deflation would be pure, unadulterated good.  And in fact, as technology advances and manufacturing techniques improve, deflation (lower prices) are natural.

The entire planet is being totally screwed-up for the benefit of predators and the irresponsible.  What a sick joke the human race has become.

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