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Deflation Doesn't Exist

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I want to believe that deflation doesn?t exist, but it does. We are in it right now, but why can?t we see it? Because "simpletons,lemmings,sheeple" are not supposed to see it until it is too late.


I will agree that deflation is not a "big thing" right now.


Everyone (The vast majority) on the face of the EARTH is dependent on inflation, 100% totally addicted to it. All of you reading this are addicted to and controlled by inflation?


The infrastructure of civilization is held together by inflation?


All future hopes and dreams can only come true with inflation?


Now once again this is how fractional reserve banking works? As simple as I can make it?


This is how ?modern? Fractional Reserve banking has worked for 100?s of years.


Phase/Stage 1


Everyone?s favorite drug INFLATION of Debt?


Once the maximum potential for debt inflation is reached phase/stage 2 begins. (this is where we/you are? standing at the edge of ?the good old days?)


Phase/stage 2


DEFLATION of debt, How or why?


Compound interest is the price to sustain inflation. As long as you can pay the price, inflation will continue and your hopes and dreams will usually come true. Once you can not afford the payment your hopes and dreams will not come true. Simple


The only way to pay compound interest is to borrow money/create debt. Once borrowing slows or stops compound interest can not be paid and debt deflation is the result.


Aren?t we just in a mild recession or ?soft spot??


No, In the past there was ?slack? in the economic system, what is slack? ?SAVINGS?. with the introduction of computers the economists have figured how much everyone has, and marketing specialists have figured out how to get it. The charts below are some evidence that the slack is gone?






We are just in the beginning stages of debt deflation, the deeper we get into it the more apparent the lack of slack will become.


Phase/stage 3




Complete collapse of all interconnected banks in the system, since the US dollar is the world reserve currency the world banking system will collapse. plain and simple.


Recap of the ?LIFECYCLE? phases/stages of fractional reserve banking.


Phase/stage 1 = debt INFLATION


Phase/stage 2 = debt DEFLATION


Phase/stage 3 = ?Bank?ruptcy


Simple as 1,2,3


Why do I harp/rant about this? Answser:




The ?powers that be?, YOUR MASTERS know full well how the system works and once the milking is over they will finish you all, they will hunt you down like animals in the end. Then after everyone is ?raped? and ?pillaged? and the bodies are bulldozed into mass graves Inflation will start all over again.

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Have to reply to my own posts now or jump on the hyperinflation/reinflation band wagon.


Here?s another ?hint?, Debt deflation has ?signs? luxuries drop in price and commodities go up in price. The King of commodities, the all powerful and magical store of wealth and holder of the title of real money, GOLD, starts a rapid increase. To make a long freaking story short the price of gold has been manipulated for decades and now for some odd reason Gold ?breaking out? is a ?big thing?, the manipulation is breaking down as the physical pile backing up all the paper shrinks under the demand?


Example from a previous post.


Many years ago when gold coin was the currency Banks did not exist... The only group that had the necessary facilities to store wealth in the form of gold coins were the GOLDSMITHS. People would store (Deposit) their gold and the goldsmith would give them a receipt. The people found it easier to carry receipts to market then gold after awhile and the receipts became as ?good as gold?. The Goldsmiths noticed that at any given time 90% of the gold in their vaults just collected dust, so the goldsmiths started loaning gold in the form of receipts on top of just making phony receipts. The gold market to this very day is run like this? as long as people will take paper instead of GOLD you will never run out of GOLD and paper is almost endless. One slight problem was found with this system DEBT INFLATION. As Debt inflation grows the ?receipts? lose buying power 2 ways a) the compound interest charged on the ?loans? destroys the value of the receipts b ) The counterfeit receipts and loans increase the supply of buying power which causes prices to rise which adds to or compounds the destruction of buying power. And the biggest problem with DEBT inflation is that the bigger the DEBT grows the less GOLD there is to back up the DEBT so eventually the system will grow continually weaker until there is no backing any more for the receipts in circulation.


At the start of Debt inflation 1,000,000 receipts are in circulation with 10% backing by gold, so as long as only 100,000 receipts are exchanged for GOLD then there is no problem. But if DEBT INFLATION is reaches MAXOUT at 10,000,000 then only 10,000 receipts are needed to suck up all the gold?


This ?trick? is 1000?s of years old.


Or it?s just Anti-Banking communist propaganda? But the trick is still effective today or is it? For a bright future for the United States of America the ?trick? must be extended forever? But this ain?t a computer program this is the real world with real people and unless there is a machine that can produce GOLD out of thin air, the ?manipulation? is going to crumble and gold will rise so fast and far that it will be ridiculous? Is that a problem? Not for people with gold in their hand, big problem for holders of IOU?s and empty vaults.


The banking system would collapse if they lose control?Plain and simple. Doesn?t look good now does it?


Now other commodities which are actually necessities like food, Oil and Gas will start rising in price, what? Are we talking about deflation or inflation? So you are not lost, Debt Deflation but ?necessities? will inflate quite a bit at the start. We have just started this process and must see how it unfolds, GOLD is not going to keep me warm in the winter for very long, DUH?


?Debt Deflation causes luxuries to drop in price?


New technology? Computers especially, in the toilet down to the bare bones. Cars? Sold at a loss. Aircraft? There is a desert full of usable jets but flying is another luxury.


No sense continuing is there? We see the evidence every day, UAL went Bankrupt because of one thing DEBT DEFLATION. And now all the debt that UAL had is going to soon disappear adding to? you guessed it DEBT DEFLATION.


Now for the punch line? There is nothing that will prevent the collapse of the World Banking System due to Debt Deflation, Nothing, ZERO? Reinflation?, Hyperinflation?


Just what are the mechanics involved to get this reinflated/hyperinflated debt into the hands of the people to produce the economic activity needed to reinflate/hyperinflate the next round of debt next month, next week, next day, or the next hour?


It ain?t going to happen this time, it?s the end of the line for Debt Inflation, 2003 is game over. Just wait and see it for yourself?

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Noland last week had something to say on this.


I have never been especially fond of the inflation/deflation debate. Such a one-dimensional perspective may have been reasonable decades ago when economies were production-driven, finance was generally infused into the economy through bank Credit funding investment (?Monetary Processes?), and domestic economic and financial systems were relatively resistant to global forces. But a focus on an ?aggregate? price level is inapt in today?s exceedingly complex global economic and financial labyrinth. To manage U.S. monetary policy on the basis of an aggregate goods and services price index is inappropriate and quite dangerous. To disregard Credit excess, endemic speculation, and asset Bubbles is a failure of monetary theory and central bank policy. And to ignore that contemporary Monetary Processes predominantly inject liquidity into the U.S. economy through the financing of asset holdings (real and financial) is to miss the very essence of contemporary economic analysis. Now that the supposed risk of ?deflation? is the focus of considerable attention, it has become clearer in my mind that the nature of the discourse only detracts from the key financial and economic issues of our time.




If assets deflate and commodities or services inflate do we have inflation or deflation? These are interesting arguements but sometimes a bit circular. When on the horns of a dillema it is often because your asking the wrong question, or presenting the sides of the debate in the wrong way. Doug says the inflation/deflation arguement is too narrow and as it applys to driving Fed policy it is very destructive.

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Guest yobob1

Hyper, I'm with you. In the commodities world, the paper is tied to real things that thave real value related to supply and demand. PM's have value beyond their utilitarian uses as they regain monetary status, while something like wheat or aluminum will ultimately respond to the true underlying supply and demand. The markets for most things will not find shortages ( in stores or capacity) while demand will be regulated by the ability to pay which is likely to diminish. In the meantime assets such as land, cars, boats, etc. will fall in value. First because of stauration and falling demand on "new" units which drives prices down for both new and used, and then the big plunge comes when the debt backing all this crap starts going bad flooding the markets with "almost new" supply. The automakers have already accomplished this on their own by super saturating the markets with "free financing". Free financing is a bogus concept because what you save in interest is eaten up with depreciation the minute you sign on the line.

The currency wars will break out soon as competitieve devaluation gets going. Japan has to be squealing like a stuck pig. Between China and the US, their currency is in a 'hot spot" and they can't be happy. Pretty soon it will dawn on the Europeans that they don't want to be King of the Hill either, especially if the Japanese can start moving the yen towards their 150 target.

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"Japan has to be squealing like a stuck pig. Between China and the US, their currency is in a 'hot spot' and they can't be happy."


It's worse than that. Japan is indeed squealing like a stuck pig. So four different government ministers were trotted out last week to talk the yen down to 125, on its way to a desired target of 150.


And what happened? O'Neill and Lindsey were fired, giving the impression that the U.S. wants a weaker dollar. The yen soared to 120, stronger than it was when the "talk down" campaign started. Japan has totally lost face. Bush made the Japanese government look like lame fools.


The lack of international coordination -- the ongoing "sauve qui peut" competitive devaluation -- is a symptom of a deeply troubled world economy. Nobody's in charge. It's every man for himself, and some might not make it.

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Guest yobob1
competitive devaluation -- is a symptom of a deeply troubled world economy. Nobody's in charge. It's every man for himself, and some might not make it.


If the dollar goes, almost no one makes it. My pick for a "safe haven"? Russia. The death of communism has been greatly exagerated. Just wait until Commrade Wal Mart opens up to absorb all that Chinese crap.

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There was an interesting point brought up on another board.


Gold is the ultimate inflationary signal (at least that's what the majority of investors think) ..so, the FED is now allowing Gold to rise because they are trying to cover the signs of deflation that are cropping up.


Interesting thought anyway.

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I think Japan was about four years into their economic downturn before anybody even had a clue that deflation was at work. So it takes a while to be obvious. If monetary trend changes always announced themselves clearly in advance then the havoc they wreak could be sidestepped by many, but they don't so the masses usually get blindsided.


One clue I see to "stuff" deflation now is how retailers are doing anything, anything, to open your wallet and get you to spend more money.


One garment or box of crackers or widget might be a bit expensive, but buy 3 and get a better price per unit.


Or spend $XX and get free shipping, etc, etc.


Or, "zero zero zero" - 0% financing, 0% down, 0 payments for a year.


If mass psychology were of the "better buy it now before the price goes up" mentality, we wouldn't be seeing such efforts on the part of retailers to coax people to buy. The inflationary mentality might still be lingering in real estate and a few other places, but I have my doubts it will last.

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I suspect gold will be higher than it is now if nothing "weird" happens.




The inflation deflation debate is a head ache. "Debt deflation" is all that really matters in the end. The evidence of debt deflation just doesn't exist for some reason every chart I have seen shows no real change in the debt supply. I can only suspect that debt deflation is not accounted for or is covered up in some way.


By the time it does show up it is too late. And becides deflation is not profitable only inflation is profitable...


Right now we are on the edge to create more debt inflation the "consumer" must deflate debt but that will only lead to further debt deflation the problem is the consumer is maxed out. The FEDERAL GOVERNMENT could borrow to make up the difference but taxes would have to rise adding to consumer debt deflation even more.


My statement...


Here?s another ?hint?, Debt deflation has ?signs? luxuries drop in price and commodities go up in price.


I could add...


"Needed" services will also rise in price


I guess I will need to go into greater detail...

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Guest yobob1

One by one services will start to fall also. Take mortgage bankers for example. Health care and the insurance companies are screaming upwards, but they are rapidly pricing themselves out of the market, and then they too will collapse.


We have a service economy. Service economies cannot sustain themselves. Production of goods from raw materials is the true source of strength in any economy. It's call adding value. We are not adding value in sufficient quantities to support the service sector in the long run. Service economies are simular to circular trades...looks good on paper, but the reality is something totally different. Just ask Enron.

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Heres a nice chart I like to look at that was created by George Ure and Ehor Mazurok. Ive got more on it on the main page of my site (www.thedirtdigger.com) along with some links to their discussion which is a great read.




As far as the price of gold just look at my head and shoulders chart and compare it to the gold/dow correlation chart in chapter two. By seeing the rise equals the fall you can chart the time its going to take to make its move then just plot the price on the correlation chart. Everything is moving right on schedule. Its just math that is underlying the whole process and its inflation/interest rates that drive that math, which is why hyper is so emphatic and of course he's correct. :blink:

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At the rate Al's goinga loaf of bread will cost $100,000, but we won't need wheelbarrows because we have the plastic.


Everyone will be broke anyway.


Unless of course the debt collapses and the money supply implodes first.



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Guest yobob1

Trust me on this one Doc, the debt will get us first. The last few years in order to keep the bubble expanding they have had to lend to the weaker borrowers to mask the underlying default rate. The newer debt has been going bad quicker, requiring an increase in lending to even weaker borrowers which of course goes bad more quickly. Once the rate of expansion slows even slightly...Ka-boom. At that point the true default rate leaps to the fore and lending standards are rapidly tightened. Game, set, match.


The wheelbarrow may come in handy for carting those apples down to the corner though.

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Basically ?we? are all right in our own ways? But Jorma has produced the more sensible aspect ?To disregard Credit excess, endemic speculation, and asset Bubbles is a failure of monetary theory and central bank policy? I don?t believe under the current social/political/economic structure that Fractional reserve banking can inflate debt forever, it will always end in bankruptcy whether 70 years down the line or 140 years. Eventually the life cycle comes to an end. It?s a sad story for sure?


Doc is right about the catch 22 nature of it all, If Hyperinflation shows up then it will be a prolonged death, if it doesn?t, it will be a quick death.


In my mind it is the end of the line, but until Wall Street is DOA it ain?t over by a long shot? Or it?ll be over next week. Just have to see what ?madness? takes hold over the next few months.

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