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deflation, Deflation, and more DEFLATION! Why?

April 20, 2013

The markets have deflated gradually these past few years but the trend is now towards more Rapid DEFLATION going forward. Why? My sense is that the accumulated DEBTS on the books of governmental organizations, corporate entities, and consumer accounts has created the need for retrenchment (austerity). Spending is now starting to slow and borrowing is also slowing rather rapidly. The other factor that is leading to deflating markets is our digital money units. These units are now mostly in cyberspace and are, therefore, non-physical units (they are not paper currencies as in prior inflationary environments…say Zimbabwe, Argentina, or Weimar Germany).

Paper currency units would get distributed to consumers who would then spend them immediately. Digital units are much different from our historical PAPER currencies. As Central Banks create new digital units most of these units do not get SPENT by consumers (who make-up some 70% of all spending in most economies). Digital units are not being forced upon consumers as was done in the above paper currency countries. Also, the Fed’s QE policies create new digital units which then become ‘excess reserves’ within mostly Dealer Bank digital accounts. These digital units are not creating sufficient velocity to create any meaningful INFLATION. These factors and others mean that we now must experience deflation going forward!

Keynesian economics is based on CREDIT creation and the rapid expansion of borrowing by corporations and consumers. As new credit is created new debt emerges. Debt gets spent on new projects and new consumer goods which then expands growth and the velocity of money units in the overall economy. This usually leads to some ‘inflation’ as people bid up prices with new credit. This situation has now changed dramatically. Also, demographics within the United States is changing and causing the Baby Boom generation to downsize as they retire and seek a more simple lifestyle. These factors and more are now causing the markets to start their descent into DEFLATION (less demand and less money velocity) even though the supply of goods is still increasing.

With the supply of goods increasing (relative to demand) this will cause ‘prices’ to decline over time (with some exceptions). Items which have an inelastic demand (say like Jack Daniels Black, Gold, and/or Silver) will likely experience increases in ‘price’ over time. What is now coming rapidly to our markets is the recognition that our financial institutions are mostly insolvent. The ‘values’ of assets on their books is declining over time and their Capital is insufficient to cover these coming declines in ‘value’. This situation will lead to defaults, liquidations, bankruptcies, and bank runs. Thousands of commercial banks will likely become insolvent within the next few years. Bankruptcies will increase. Most prices will trend downward over time. Deflation is the consequence of all our PRIOR over-consumption and excessive debt accumulation.

The time for an economic reversal in direction is now starting and this trend will increase over time. Deflation is anathema to the Keynesian Economic Model…none-the-less, it must happen when debt and over-consumption reach threshold levels. Deflation is positive for those in lower incomes and for those with little or no debt. Cash (paper notes and digital units in a checking account) are KING during this period that is emerging. Gold and Silver will also experience a huge increase in ‘price’ after the markets understand the imaginary nature of our digital units. The scramble for something real and physical will occur and this will lead to consumers and investors bidding-up each gram or ounce of gold and/or silver to historical levels.

Now is the time to start preparing for the coming DEFLATION and its consequences. Our last major deflation was back in the 1930’s. Those who follow the Long-Wave Business Cycles, understand that this deflation must occur to cleanse our economic system. Cleansing is a long-term process which will take years (say 5-7) before the system is cleansed of all the excesses and the accumulated debt. We could eventually witness some type of DEBT moratorium for consumers and a DEBT default for many of our Cities and our National Government. The multi-trillions of DEBT currently on the books of our Government can not be repaid. A National Policy of Default will be necessary at some point down the road. Expect some chaos in the markets  the next few years. Chaos is unavoidable given the nature of our economic problems today!

To gain a better understanding of our Keynesian Economic Problems and why the System must collapse and be cleansed, you can check out these websites;







GET your house in order now so that you can operate in a positive manner when the COLLAPSE arrives. My sense is that 2013 is the beginning period! Enjoy and stay alert!

2 Comments leave one →
  1. April 22, 2013 12:12 pm

    You make a good point. Credit inflation is different from paper note inflation. Today, most of use credit and this use is now reduced. This will lead to deflation over time. D



  1. The reality of inflation, deflation, currency, and credit | power of language blog: partnering with reality by JR Fibonacci

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