The Case For Deflation

Inflation is the current fear. That is fine for mainstream economics. But, thinking is not allowed in economics. First, deflation is not bad for an economy. Inflation favors the wealthy, government and others who have borrowed. Deflation favors the working class. In a free market, economic power naturally shifts back and forth from one sector to the other.

Deflation occurs naturally when the productivity of labor increases. Inflation is created politically.

When power starts to shift in the direction of the working class, the upper class can and does create inflation politically as a means of maintaining its advantage. During the period between 1873 and 1879, prices dropped by nearly 3% every year, yet real GDP growth was around 7% during the same time period. However, despite this economic growth and the rise of real wages, historians have called this period “The Long Depression” because of the presence of deflation.” Investopedia

Prices dropped profoundly during the 1870s during a long period of economic growth. Real wages increased significantly. At this time procedures for enhancing economic activity by way of “stimulus” had not yet evolved. A degree of economic power did shift to the working class for a while.

In our modern era, the Federal Reserve has been fighting deflation since the Reagan
administration. Increases in the productivity of labor have been monumental. Yet, real wages have stagnated. Profit margins of corporations have increased. Prices have been very stable until recently. This is no accident. The working class has been robbed of the productivity bonus it would have received had prices been allowed to fall. This has all been accomplished politically.

Now it is politically expedient to create inflation as a means of shrinking the debt size of heavy borrowers.

Deflation has been defeated for 40+ years but deflationary forces are still present and have increased. Unlike other economies where runaway inflation has taken hold, the United States has massive production capabilities which can be used. An enormous amount of demand has been in non essential goods and services. There are also plenty of substitutes for all we buy and consume. Creating ever rising prices will be an enormous task.

One of the many negatives with respect to stimulus is that resources become more and more inefficiently allocated over time. Recessions occur because businesses are not getting the profits they expect from what they are currently producing. Recessions disappear and business finds more productive ways to use its resources. Inflation prevents this from happening.

In economics, if we prevent what will occur naturally, what would occur naturally occurs
anyway eventually. Notice, I am not citing numbers or pointing to lines on charts. I don’t need to. Instead, I think things through and as always am focused on what causes numbers to be what they are instead of thinking the statistics just happen to fall into place the way they do.

So, I am expecting things to reverse. Inflation will give away to deflationary forces and the overall price level will fall. Lets see what happens.

We are facing a depression, not a recession. Deflation, honestly is more likely.

Friends of the Fed

Who are the Friends of the Fed? Friends of the Fed are dealers who insure the Fed that newly created money will be channeled into appropriate financial markets. More important Friends of the Fed are the high frequency trading firms who orchestrated short squeezes and manage uptrends in a positive manor. Friends of the Fed are loyal to the Fed as long as the Fed can and does guarantee risk free profits for them.

How do I know, there are Friends of the Fed and that the market is manipulated? It actually is more than a guess. How did astronomers decide that Pluto existed before it was visible? They could see the effect it was causing. For two decades, the stock market has moved with consistency that is not possible in a natural market setting. In a natural market setting, things don’t always turn out right. When one company reports bad earnings in a rigged market, that is always offset by supper good news of another nature. Situations don’t turn out that way over and over again by coincidence. Affirmative stock market action is real and ongoing. It is completely self serving for most to pretend that it ordinary investors are driving the market up. The market is being managed and it will be until one or more of the tools of manipulation wears out. There is never solid information in the present moment. We have to figure out what is going on.

You would think stock buybacks would be discontinued because they work to the eventual determent of the corporations. Stock buybacks are not for the benefit of business. They are a payday for corporate insiders. Buybacks will not be the first tool to disappear.

The Fed is having trouble guaranteeing profits to the Friends of the Fed. Dealer activity is naturally reduced when QE is discontinued. The high frequency trading companies flourish in an atmosphere when virtually all trades take place in less than a minute down to a fraction of a second. Volume must also be kept low. The time will come when complete short term trading is no longer in vogue. That will kill the high frequency trading firms and they will be the first of the tools of manipulation to fail.

What constitutes volume? If we subtract the volume from money that does not stay committed over night form over all volume, it is easy to see that very little in the way of long term holdings, is changing hands. When long term holdings start hitting the market, there will be no stops to run. There will be no buyers either. So, will the market drop? Of course it will but that doesn’t mean the game is over. There will be ingenious initiatives that will serve to pass as many losses as possible to the general population.



 

Theft by Stimulus

I used to joke about visiting prisons to teach thieves legal ways to steal money. That way they wouldn’t get locked up again and taxpayers would not have to support them behind bars.

Economic stimulus is a euphemistic term for theft. To know this, it is not necessary to go through volumes and volumes of  economic dogma. Any theory or approach that is used by government to stimulate the economy can be debunked in a few sentences without even knowing the specifics of the dogma being used. The current round of theft began after Reagan took office in 1980. The United States has experienced at least thirty seven consecutive years one kind of stimulus or another.

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Simple Answers

Simple Answers  PDF Version

Where human behavior is concerned all answers are simple. Complex answers evolve out of mankind’s propensity to avoid entertaining the truth. How is the truth avoided? It starts by ascribing the most flattering definition to each human being, each public institution and all legal human activities. <!–more–>The brutal system of dominance and subservience in which we all must participate, is explained away, with human beings occupying some sort of imaginary special high ground within the universe. Dispense with those reassuring but false notions  and explanations do become quite simple.

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