One would not be mistaken if they interpreted the ‘conflicting signals’ sent by ‘economic analysts’ as ‘bi-polar’. That said, for the average individual, discerning the difference between ‘inflation’ and ‘deflation’ will be similar to picking fly shit out of ground pepper (without the assistance of a microscope.)
Which is to say that those who would ‘deceive’ you into thinking these two terms are ‘opposites’ are yanking your crank, good and hard.
It’s like damning you for smoking while they have a burning cigarette between their fingers, when you point out their hypocrisy, they reply: “I’m not smoking, the cigarette is smoking, I am merely sucking on it.”
‘Deflation’ doesn’t cause prices to fall (like ‘deflating’ the tires on your car) because that is not what is ‘deflating’. The ‘shrinkage’ is taking place in your purchasing power. The value of your money is shrinking…which is commonly known as ‘inflation’, the increase in prices caused by the decrease in the value of your money.
Um, more simply put, inflation is measured as the increase in price caused by the decrease in your purchasing power…and anyone who claims otherwise is jerking you around!
Oddly, the Libertarian-‘bots’ have bought into the ‘deflation meme’ big-time. I think the connection is the ‘unjust’ erosion of your purchasing power by their ‘enemy’ the government rather than the flipside of this phenomenon which is price increases instituted by the Holy and Sacred capitalists to offset ‘their’ loss of purchasing power. (It’s not stealing when I do it.)
What the assholes aren’t saying is there isn’t a nickel’s worth of difference between ‘hyper-inflation’ and ‘hyper-deflation’, they are essentially the same thing.
Which brings us to tonight’s offering
[Purloined from Jesse’s Crossroads Café: we join this article roughly a third of the way through.]
Where Do We Go From Here?
The status quo has failed in its own imbalances and artificial distortions. But while avoiding bubbles in the first place through fiscal responsibility and restraint is certainly the right thing to do, plunging a country which is in the aftermath of a bubble collapse into a hard regime, such as the liquidationists might prescribe, is somewhat like taking a patient which has just had a heart attack and throwing them on a rigorous treadmill regimen. After all, running is good for them and if they had run in the first place they might not have had a heart attack, so let's have them run off that heart disease right now. Seems like common sense, but common sense does not apply to dogmatically inclined schools of thought. [No irony should be lost on the fact that precisely what Jesse refers to here has indeed been done to those who have lost control of their financial destiny. The turmoil in Greece is merely a recent example of the ‘power’ of global bankers.]
What the US needs to do now is reform its financial system and balance its economy, which means shrinking the financial sector significantly as compared to its real productive economy. This is going to be difficult to do because it will require rebuilding the industrial base and repairing infrastructure, and increasing the median wage. [It is somewhat disconcerting to see ‘common sense’ advocated in light of the ‘insanity’ that got us here. Which is to ask if you think there is a chance ‘common sense’ will suddenly return (without a fight) to where it has been so long absent? And suppose it does (without a fight) could you ‘trust it’?]
The US needs to relinquish the greater part of its 720 military bases overseas, which are a tremendous cash drain. It needs to turn its vision inward, to its own people, who have been sorely neglected. This is not a call to isolationism, but rather the need to rethink and reorder ones priorities after a serious setback. Continuing on as before, which is what the US has been trying to so since the tech bubble crash, obviously is not working.
The oligarchies and corporate trusts must be broken down to restore competition in a number of areas from production to finance to the media, and some more even measure of wealth distribution to provide a sustainable equilibrium. A nation cannot endure, half slave and half free. And it surely cannot endure with two percent of the people monopolizing fifty percent of the capital. I am not saying it is good or bad. What I am saying is that historically it leads to abuse, repression, stagnation, reaction, revolution, renewal or collapse. All very painful and disruptive to progress. Societies are complex and interdependent, seeking their own balance in an ebb and flow of centralization and decentralization of power, the rise and fall of the individual. Some societies rise to great heights, and suffer great falls, never to return. Where is the glory that was Greece, the grandeur that was Rome?
The lesser concern for the US now is globalization, new trade agreements, and its debt, [Sorry Jesse but I must disagree, it is not possible to ‘re-balance’ our economy without re-industrializing, but you say this yourself.] which is largely held by foreigners who have provided vendor financing while using exports to build their own economies. The mercantilists are addicted to exports because it provides them the means to bring in national wealth for the benefit of a narrow elite, without empowering the masses and allowing them a greater measure of say in their government, with only a modestly improved standard of living.
This Will Not Be Your Father's Inflation
Why is this important? Because as I think is apparent in the stunning chart contained in Debt Saturation in the US Dollar Economy, the US dollar is already entering an inflationary spiral that will lead to its destruction and reissuance. [Um, this time it won’t go as ‘smoothly’ as the confiscation of gold went. The people have lost faith in fiat currency and will ‘resist’ replacing one with another…especially ‘at a loss’. Oh, guess what ‘chart’ Jesse is referring to here? It’s the same chart we saw yesterday in ‘Wanna buy some dope?’]
Although as you know I always allow that deflation and inflation are policy decisions, at some point a threshold can be passed, and the likelihood of one event or the other becomes more compelling. The US is at that crossroads wherein it must change, or go down the painful path of selective monetary default, of a degree different than a hyperinflation, more similar to that which was seen in the former Soviet Union, than the monetary implosion of a Weimar. [Bizarrely, for those of us not involved full time in ‘shepherding our assets’, it will seem ‘exactly’ like the Weimar variety. Sans the wheelbarrows…if you can’t afford it, tough!]
One can watch the growth of the traditional or even innovative money supply figures, and be reassured at their nominal levels, only to misunderstand that money has a character and quantity of backing, that can erode as surely as the supply of money can increase, to produce a type of inflation that comes upon a nation quickly, like a thief in the night. It will bear the appearance of stagflation, because it is caused by a degeneration of the productive economy coupled with a disproportionately increasing money supply. [And it’s going to redefine the term ‘wake up broke’, the panic/violence will be incredible!]
A transactional economy can have all the appearance of vital growth and activity, when in fact it may be an increasingly hollow shell, a Ponzi scheme, and prone to unexpected collapse. Such a systemic collapse was almost witnessed when the US financial system was threatened by the fall of Lehman Brothers. That event was averted. But the system still remains in a precarious, unreformed state of imbalance. [Um, Lehman was a ‘dry run’, next time they’ll just let her rip and the chips will fall where they fall.]
What does a country have to providing a backing to its money, except its natural resources, its productive labor, and the ability to create products of value? Some countries, or more properly empires, may provide the backing for their currency through force and fraud, and a sort of indirect or de facto taxation on the many. These types of arrangements can last many years, but can disappear quickly, based as they are on conditional situations, subject to relatively sudden change. [Understand good citizen, this is one of the rare instances where the ‘value’ of the currency of the ‘Hollow Lands’ has been questioned…and it wasn’t me pointing the finger!]
Cutting expenses to reduce deficits is a weak attempt to reform. One does not starve themselves back to health. What is needed is growth, savings and investment, the reallocation of capital and true valuation of goods and services. The productive economy must come back into balance with the administrative sectors, those being finance and government. [Ah yes, the central ‘pillars’ of capitalist economics, ‘unlimited growth’ will cure all…too bad we live on a finite planet! Can’t kick Jesse too hard in the shins, if nothing else he’s that rarest of breeds, ‘the honest capitalist’. (Which means he still can’t bite the hand that feeds him.)]
At the end of the day, some of the greatest impediments to economic recovery reside in the selfish and fearful desire for control and power in rather narrow oligarchies, both in the East and the West. They were the primary beneficiaries of the status quo, and they will seek to maintain and even recreate it, even though it has proven to be unsustainable.
It must be a terrible curse, to clearly recognize the madness while being compelled to support its continuation.
Which is to say contemporary capitalists must be at wits end trying to keep their heads from exploding. It’s gotta be a real bitch to discover that everything you thought you knew, every value you’ve held dear is wrong.
Now that the world you’ve been raised in has been exposed as the ‘Evil Empire’, how do you re-trench? Are the concepts you’ve been taught were evil really good?
And the answer is, no…they’re still evil, mostly because they are the same thing we have here albeit, in a different wrapper. The card carrying Commie had no more power than the ‘free range’ capitalist ‘Paycheck Peasant.’
Ironically, neither is any better off than they were under Monarchy, where the ‘aristocracy’ laid claim to all they surveyed. It’s more disturbing that the kings stepping off their thrones didn’t alter that outcome significantly.
Which is to point out that Capitalism and Communism are both ‘outwardly different’ varieties of Aristocracies. The differences are only ‘cosmetic’, superficial.
Thus are we in danger of the ‘resurrection’ of Monarchy’s ‘doppelganger’, dictatorship.
What do you suppose is the principle similarity between these diverse systems? The will of the people be damned! It is ironic that you’d occasionally get a benevolent king but you’d never get a benevolent president. Which is to point out that the only reason FDR looks ‘good’ is because all of his predecessors, er, sucked.
While some people idolize Abraham Lincoln, he didn’t do the slaves any favors…it is delusional at best to think all it takes to abolish slavery is making bill of sales for humans illegal. Hell, if you have enough dough, you can buy yourself a human ‘pet’ today!
Worse, you don’t want to ‘own’ the cow; all you really want is the milk…that way if the cow gets sick it is not your problem. You’re free to steal the milk from another cow! Hell, there’s a line out the door of cows just begging you to milk them!
You didn’t see spectacles like this in Native American societies…but the Native peoples set themselves up to care for people, not just the chiefs.
They, unlike their modern day successors, knew what was ‘valuable’.
Thanks for letting me inside your head,
Gegner
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