Deflation, Deflation-Phobia and Reality. The True Believers Want to Believe. The Liberals Need our Wealth.

Our economy is, clearly, in a debt-driven deflationary spiral where wealth has been lost in falling real estate prices and the credit that was created by this wealth is lost. But, there are those who seem to believe that deflation is some kind of will-o-the-wisp that sends visions to little minds when the darkness is at its zenith in the swamps of ignorance. We are in it but it may change to inflation or hyperinflation soon if we print enough money.

Deflation is a real phenomenon and was well-studied by Irving Fisher in the late 1930s and Ambrose Evans-Pritchard[1] and I[2] seem to agree on Fisher’s analysis and his major addition to the theories of economics such as they can be without direct political interference and disinformation barrages.

The fundamentals from Irving Fisher:

“Following the stock market crash of 1929 and the ensuing Great Depression, Fisher developed a theory called debt-deflation. According to the debt deflation theory, a sequence of effects of the debt bubble bursting occurs:”[3]

1.     Debt liquidation and distress selling.

2.     Contraction of the money supply as bank loans are paid off.

3.     A fall in the level of asset prices.

4.     A still greater fall in the net worth of businesses, precipitating bankruptcies.

5.     A fall in profits.

6.     A reduction in output, in trade and in employment.

7.     Pessimism and loss of confidence.

8.     Hoarding of money.

9.     A fall in nominal interest rates and a rise in deflation adjusted interest rates”

Is there anybody who can not see all of these nine points not glare out from this page if you are watching our economy? So, the forces of disinformation are now aided by politics and thus surge forth to ‘correct’ the deflationary model alarm and attack its adherents.

The Ambrose Evans-Pritchard view:

“My discovery as a journalist is that deflation is a taboo subject.”[4]-- There's no quick fix to the global economy's excess capacity By Ambrose Evans-Pritchard Published: 6:57PM BST 15 Aug 20 2009

“As a matter of strict fact, two- thirds of the global economy is already in “deflation-lite”. US prices fell 2.1pc in July year-on-year, the steepest drop since 1950. Import prices are down 7.3pc, even after stripping out energy. At almost every stage over the last year, in almost every country (except Britain), deflationary forces have proved stronger than expected.

Elsewhere, the CPI figures are: Ireland (-5.9), Thailand (-4.4), Taiwan (-2.3), Japan (-1.8), China (-1.8), Belgium (-1.7), Spain (-1.4), Malaysia (-1.4), Switzerland (-1.2), France (-0.7), Germany (-0.6), Canada (-0.3)”-- There's no quick fix Ambrose Evans-Pritchard. [Emphasis is mine in all quotes.]

All solid stats that demonstrate deflation. The intrinsic tabooisity[5] inherent in this primitive rebuff of stark reality is politically related to what might happen if we all agreed that Fisher’s Nine Points are currently being fulfilled. If we all accepted that such a process was in effect then we would have to rescue the banks and somehow inject money into the economies to simulate growth, but that is just what we are doing now except for the kind of federal spending that only grows government or transfers debt! The Fed has lowered interest rates to practically zero and we still contract despite stimuli of various sorts. The stock markets appear to be in some “W” formation where we have had a nice [read phony] bear market rally and all is well, but Ambrose Evans Prichard points out that we have seen that before. It happened many times in the period 1932-1940. The wild notions of ‘recovery’—so important to the politics of Obama—are based mainly on the market’s remarkable rise in the past few months. The other economic markers show less enthusiasm for a ‘recovery’ as yet. They point in the opposite direction. The fight to reverse deflation would restrict spending to relieving the systemic ailments of the economy—not just spending to increase government.

Other opinions:

Some predictions from Amity Shlaes Wednesday, December 31, 2008:

“The United States has entered the era of the experiment. President-elect Barack Obama is putting forward an infrastructure program whose plans and price tag are unclear. Treasury Secretary Henry Paulson whipped up the Troubled Asset Relief Program to buy up bad mortgage instruments, and, expanding on that experiment, President Bush wants to try extending TARP to autoworkers.”

The idea that experiments are warranted in current circumstances comes from the New Deal. The official history is familiar: FDR put forward multiple projects, some at cross-purposes. Yet New Deal inconsistency was not a problem and might have been a virtue. Through "bold, persistent experimentation," his catchphrase, Franklin Roosevelt brought recovery.”-- A Chilling Uncertainty. The Lessons of Roosevelt's Experimentation By Amity Shlaes Wednesday, December 31, 2008

Debt caused this problem but now we attempt to do some "bold, persistent experimentation with more debt? Yes. And, the reason is that certain political forces are doomed to effectively compete in a surging capitalistic atmosphere such as we have had since Ronald Reagan took command. The left were quite contented with Jimmy Carter and his inflation and malaise and stagflation because this caused a shift to the right in decision-making voters who are concerned about their assets and jobs and the future of their children. The outcome of the Reagan Revolution and massive growth and job creation were flatly rejected by the leftists like Paul Krugman. [6][7] They cannot psychologically handle the notion of tax cuts. Spending is all they have and they are certainly doing that now.

Remember that deflation will go away if it is replaced by inflation or hyperinflation. That is what we are buying now.

Krugman in his finest revisionist mantle:

“Bill Clinton knew that in 1991, when he began his presidential campaign. “The Reagan-Bush years,” he declared, “have exalted private gain over public obligation, special interests over the common good, wealth and fame over work and family. The 1980s ushered in a Gilded Age of greed and selfishness, of irresponsibility and excess, and of neglect.””[8]---Debunking the Reagan Myth By Paul Krugman Op-Ed Columnist Published: January 21, 2008

This is the proper response for a socialist or even farther-to-the-left stooge to say in response to a massive growth in the economy where the liberals were shunned as idiots and dupes of Jimmy Carter. What else can they do? Praise Ronald Reagan? No, all those tax cuts were ‘costs’ to the economy, or the distorted version of what the Democrats think the economy should be, and we have had to pay for them all along.

More from Krugman:

“For it did fail. The Reagan economy was a one-hit wonder. Yes, there was a boom in the mid-1980s, as the economy recovered from a severe recession. But while the rich got much richer, there was little sustained economic improvement for most Americans. By the late 1980s, middle-class incomes were barely higher than they had been a decade before — and the poverty rate had actually risen.”-- Debunking the Reagan Myth By Paul Krugman

This is just acerbic malice and Krugman is doing his dooty[9] to criticize and demonize capitalism in its finest hour. But, it makes sense. Krugman is a disinformation expert and sits on the New York Times [aka the Walter Duranty Papers[10]] at its highest economic pinnacle as a result of the leftist gesture by the Swedes that he be awarded the Noble Prize for his ‘economics.’ That is a political sop from the “Peace-loving” Swedes[11], exactly like the case for the idiot Jimmy Carter to receive some ‘peace prize.’ The Swedes can seem to root out the stoniest offal from the dumpsters and shroud them with imaginary glory and reward them with ‘prizes.’[12] We can cite maggots like Nelson Mandela, Yasser Arafat , John Steinbeck, Henry Kissinger and Le Duc Tho, Willy Brandt, Rigoberta Menchú Tum, Kofi Annan and Al Gore [flunky, criminal, Marxist Stooge, EcoNazi] who were ‘prize winners;’ what they have in common is they are all drooling leftists, liars and parasites. 

But, these people are the leaders of the left and what can they do? Can they preach spending cuts? No, as we can painfully see in California.[13] The nation is broke and the leftists are out for the grab. I think they intentionally advise spending and ignore the current deflation and later the desired hyperinflation as dual means to conquer the lost wealth that they were cheated out of during the Reagan Revolution. What they need is our money so taxes soar on everything we can imagine and now they have an opportunity to limit healthcare for old white folk[14] and seize their wealth if they can pass the confiscatory inheritance taxes they wish so dearly to have. It seems that California is determined to plunge their state into default and bankruptcy and depend on the federal government to save them from starvation. That is their plan: they want tax monies from citizens of other states to fund their folly and drug fumes. They will whine and bawl and offer oral sex and gratuitous lids of marijuana to any politician who can get them some more money to fund their manifold addictions. Sacramento[15] now harbors the ultimate in social parasites.

What options do the left-liberals have? Allow the economy to heat back up and restore wealth and then suffer at the polls? If the liberal Democrats, noting the ‘moderates’ in the party are just so much silly putty in the hands of the extremists, allow a Reagan style economy to reappear then they are finished for another generation.

The liberals were willing to sacrifice our soldiers in Viet Nam and the Middle East in a political squabble for power and they are more than willing to spend us into unrecoverable debt so they can raise taxes and seize what is left of our wealth. Obama is an ideological racist[16][17], a far left radical statist[18] and follows the only possible route to permanent power for the left: spending to financial oblivion. And, I believe that is exactly what they are doing. They have no other option before revolution. So many Marxist governments have slid down this slimy furrow into oblivion. We are next.

All they have left is our wealth and they cannot succeed with it.

rycK

Comments to: ryckki@gmail.com