Dec 072015
 December 7, 2015  Posted by at 2:08 pm Finance Tagged with: , , , , , ,

Tyrone Siu|Reuters Deflation

As yet another day of headlines shows, see the links and details in today’s Debt Rattle at the Automatic Earth, deflation is visible everywhere, from a 98% drop in EM debt issuance to junk bonds reporting the first loss since 2008 to corporate bonds downgrades to plummeting cattle prices in Kansas to China’s falling demand for iron ore and a whole list of other commodities.

The list is endless. It is absolutely everywhere. And it’s there every single day. But how would we know? After all, we’re being told incessantly that deflation equals falling consumer prices. And since these don’t fall -yet-, other than at the pump (something people seem to think is some freak accident), every Tom and Dick and Harry concludes there is no deflation.

But if you wait for consumer prices to fall to recognize deflationary forces, you’ll be way behind the curve. Always. Consumer prices won’t drop until we’re -very- well into deflation, and they will do so only at the moment when nary a soul can afford them anymore even at their new low levels.

The money supply, however it’s measured, may be soaring (Ambrose Evans-Pritchard makes the point every other day), but that makes no difference when spending falls as much as it does. And it does. The whole shebang is maxed out. And the whole caboodle is maxed out too. All of it except for central banks and other money printers.

Everyone has so much debt that spending can only come from borrowing more. Until it can’t. We read comments that tell us the global markets are reaching the end of the ‘credit cycle’, but can the insanity that has ‘saved’ the economy over the past 7 years truly be seen as a ‘cycle’, or is it perhaps instead just pure insanity? There’s never been so much debt on the planet, so unless we’re starting a whole new kind of cycle, not much about it looks cyclical.

Also, though we hear this all the time, the collapse in spending does not happen because people are ‘saving’, but we wouldn’t know that from the ‘official’ numbers, because when people pay down their debts, that is counted as ‘saving’.

So you have debt collectors at the front door (and the back) and you’re about to be evicted or lose your car, and then when you pay them with what you would really need to feed your kids with, and sell your furniture, and sell your TV, economic models tell you you’re actually saving.

That’s the sort of accounting retardation that keeps us from ever understanding what bind we’re really in. When deflation starts and commodities prices begin plunging -and they would have to be first, there’s no better barometer-, we’re told to think that only when what we pay for goods and services goes down, do we have deflation. And when we pay off our debts with our very very last pennies, they tell us we’re saving.

Of course we could have known long ago what’s happening not only if these faulty definitions weren’t so infectiously widespread, but also if our central banks wouldn’t have engaged in stimulus related actions, ostensibly meant to save the economy but which are in reality just yet another means of wealth transfer away from you and me.

What all the stimulus has done is suspend us in a Wile E. moment fashion, in which things look sort of OK while we’re busy frantically paddling our feet, but in which we’re just as sure as Mr. E. to eventually plummet to the ground, albeit with much less predictable results than in his case (he’s always fine after 10 seconds max).

Stimulus, whether disguised as QE or anything else, keeps us from recognizing the reality of the situation, and the deflation, that we’re in. But then someone gets nervous about their investments, or their loans, their stocks, and before you know it they all do, and everything turns out to be based on leveraged debt, of which they can’t get any anymore, and they all want their money back all at the same time, and you hear a big loud Poof!

One more time, this is deflation. This is what it looks like, what it smells like and what it quacks like.

Home Forums What Deflation Quacks Like

Viewing 13 posts - 1 through 13 (of 13 total)
  • Author
  • #25462

    Tyrone Siu|Reuters Deflation As yet another day of headlines shows, see the links and details in today’s Debt Rattle at the Automatic Earth, deflation
    [See the full post at: What Deflation Quacks Like]


    “We read comments that tell us the global markets are reaching the end of the ‘credit cycle’, but can the insanity that has ‘saved’ the economy over the past 7 years truly be seen as a ‘cycle’, or is it perhaps instead just pure insanity?”

    Insanity, yes, and a very pointed insanity at that. A carefully “engineered” and manipulated credit cycle. Wile E. Coyote is hanging over the cliff, teeth precariously clamping onto the central bankers’ panties.

    Chris M

    People are certainly paying off debt. I don’t know where one goes to find statistics on that.

    On the flip side, there is still a lot of new debt being generated. People are still taking out mortgages to buy these homes at inflated prices. Folks are still using credit cards to buy Christmas presents and who knows what. Students are still borrowing for college. Just think about how many colleges there are and all the college employees and professors, who are paid from that debt. Then we hear about all these subprime auto loans given out hand over fist. Financing by debt is alive and well. For now, I guess is the point.

    Oh, and since I am in the farming industry, I couldn’t help notice Illargi’s posting about cattle prices. There certainly will be more requests for debt financing from Farm Credit Services, to keep farms operating.

    If we have another crash as we had in 2008, I am very curious about what the government will do this time. After the bailouts occurred in 2008, I know there were a lot of angry people at the town hall meetings held by senators and congressmen. Will the people let it happen again??


    Interest rates are being kept at zero which makes it possible to service the debt even though it’s impossible to repay it.

    Definition of debt service: Payment of principal and interest due on an existing debt.

    At the end of the interest-only loan, the borrower has a couple of options.

    1. You can renew the interest-only loan. In other words, the lender does not want/expect you to repay the principal.
    2. You can sell/trade an asset to the lender or someone else, so that you do not have to repay the principal to the lender.
    3. You can become an employee of the lender.

    At the end of the interest-only loan term, the lender has a couple of options.

    1. Renew the interest-only loan
    2. Seize an asset from the borrower
    3. Take the loss and suck it up
    4. Make the borrower work for you until you are satisfied that you have received what you believe to be fair value from the borrower in compensation for non payment of the principal.

    I don’t know what the future will bring but conditions will be worst than the present.



    You and Nicole have been 100% correct about deflation taking place and predicted it way before most other people. Good on you! I’m wondering if you believe there will be another deflationary depression as in the 30’s? Being a farmer, I’m somewhat concerned as my Dad stated often, “The farmers were the 1st to enter the Depression and the last to escape it.” He knew from firsthand experience that the Depression started in rural America well before Oct. 1929.

    Chris M


    I, undoubtedly, am interested what Raul has to say concerning how the deflationary move that is occurring today will be different than what was experienced in the 1930’s. Nevertheless, I want to point out some things concerning what you said about the farmers’ experience back then.

    The international bankers (JP Morgan and Co. included) had loaned large amounts of money to the Allies in Europe to fight World War I. The US Treasury loaned a large amount to them as well. The international bankers wanted to get repaid, so the United States lowered tariff bars and started importing goods, merchandise, and commodities (including agricultural commodities) from Europe as payment for their war debts. From 1919 to 1929 the United States imported $43 billion worth of goods. The US did not need those goods. It broke our price structure, including prices paid to farmers for their production, and caused a lot of industry to close down or go part-time. The damage to our economy was done, but the international bankers did get repaid. So, as you say, the farmers felt the Depression before the famous crash on Black Thursday, October 23, 1929.

    What caused this crash? Well, it so happens that in repaying their debts, England, France, Holland, and Italy had credits in American banks in the amount of about $3.5 billion. President Hoover had passed and Executive Order early in 1929 that declared an moratorium on the collection of war debts. The $3.5 billion credit was left subject to draft, and at that time we couldn’t spare $3.5 billion worth of gold and still maintain the required legal gold reserve. Banks had to reduce their deposits when the gold supply was depleted. The banks had to make collections from their customers to whom the depositor’s money had been loaned, to reduce those deposits. When they went out to collect, the banks found that their customers could not raise the funds to repay their loans. The banks were compelled to unload their stocks and bonds which they held as security against those loans, and thus came the famous stock crash in October.

    What’s today’s lesson in all this? If you don’t maintain proper prices (parity) for raw materials, there isn’t enough income in the system for consumers to pay for their own production. The alternative is for consumers to go without, or credit to be pumped in (through consumer borrowing, or the government borrowing for them and giving them the money through welfare). When your basic raw material producers, farmers included, don’t receive proper prices for their production, they lay people off or go out of business. All the companies they buy supplies, equipment, and services from lose business as well, and it goes right down the line. Right now we are seeing a lot of financial stress in oil companies as the price of oil goes below their cost of production (parity price). The same will happen to agriculture. Corn is down. Wheat is down. Soybeans are down. Beef cattle prices are down. Hog prices are down….you get the picture. John Deere just announced layoffs in one of their machinery plants in Moline, Illinois. I am sure there are others in the same boat. Caterpillar hasn’t seen great sales either in their agricultural division either.


    Chris M,
    Thanks so much for the background information on the Great Depression. Bankers always come first, it seems. Have you heard of the Physiocrats?


    Chris M – very interesting. Thank you. Whenever these guys set out to make winners (mainly the banks), then someone else has to lose. It’s not fair at all.


    Hi All,
    The teeth of the Greatest Depression, for ordinary people, anyway, is just ahead. The Debt-Money Monopolists (DMM) have engineered it so that there is no way out and they are in control.
    The monetary system that rules the economy that ultimately pays your wage is a prima facie fraud. The DMM lends $20 into existence, but demand $21 (at 5% annually) be paid back in a year’s time, knowing full well that they earned the interest money and can bankrupt you at will by simply holding back access to the $1 interest they earned – the “balance” to your $1 of interest debt.
    This is why they must inflate and a steady state economy is **impossible**. Debt-money system have two modes… grow or die (go bust). If Main Street isn’t going (being fed more money by the DMM), then they fact they don’t have enough to pay their debts means many go bankrupt and the economy collapses. To hide this fraudulent dynamic, the DMM created “the business cycle” as a euphemism to cover their criminal societal asset stripping bubble bust operations. They then teach students they are “smart” because they know about the “business cycle” and everyone buys into it.
    This is war, people. Lord Acton nailed it to a “T” over a Century ago…

    “The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.”
    Lord Acton

    You are under attack. Black people are under attack. White people are under attack. Muslims are under attack, Christians are under attack. All ordinary people are under savage attack by a ruthless Debt-Money Monopolist class – THE REAL PRIVILEGE IS DEBT-MONEY MONOPOLIST PRIVILEGE – that is, frankly, much smarter and much more cunning the average ordinary citizen, a class of people that some claim they call “the dead.”
    But the savage attack is the Fabian Socialist, Art of War type of attack. It is based on lies and deception. It is based on exploiting, controlling and manipulating.
    Ultimately, its generator is the ability of a private Machiavellian cabal to define and control the issuance of debt-money that systematically enriches themselves while it systematically impoverishes the nescient and ignorant masses.

    They are ignorant because people like Paul Krugman and Steve Keen hide this traitorous criminal operation from the masses…

    Paul Krugman warning against exposing the debt-money fraud…

    Here is Steve Keen caught covering up the Banksters criminal operation when commenters exposed it such that a grade schooler could comprehend it…

    Read the comments and watch Debt-Money Monopolist financed Steve Keen get destroyed as he tried to run interference for the Debt-Money Monopolist oligarchs that have OFFSHORED TRILLIONS OF DOLLARS THAT STEVE KEEN LIED AND SAID MUST ALWAYS CIRCULATE IN THE ECONOMY (because the fraud is exposed when the debt-money credits (money) are removed from the system while the debt-money debts (balancing liabilities) are left to burn a hole through ordinary people)

    Why did Steve Keen lie about this in such a tortured manner? My guess is he’s sold out for his job security – his part in all this controlled opposition and he is like Krugman and his Krugman’s MIT professors that warned Krugman to shut up about the monetary system – bought and paid for Judas traitors.


    We live in a Debt-Money Monopolist fascist system… a proverbial monetary steel fist in a velvet glove. If you think you are free, then try to exert that freedom by taking control of the money system. You will end up dead well before you are given freedom over the monetary system.
    And the glove is being taken off as the oligarchs are setting the stage for their Final Act…
    They want to steal everything from everyone. They are taking inventory of Greek homes to see what they can steal in their beta test of wholesale looting the Western world. And they want to confuse and misdirect your anger as they do it. And it will work – because the media, just like Paul Krugman, WON’T TALK ABOUT THE DEBT-MONEY MONOPOLIST FASCIST SYSTEM that rules over us with an iron monetary “fist.”

    “If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in
    circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.”
    by: Robert Hemphill, Credit Manager of Federal Reserve Bank, Atlanta, Ga.
    Source: In the foreword to a book by Irving Fisher, entitled 100% Money (1935)

    “When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
    ― Napoléon Bonaparte


    Trivium – like that Napoleon quote: “Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.” Ain’t that the sad truth! No country for old slaves.

    Very much enjoyed reading your response, and especially liked the comments (several of which was most likely from you) on Steve Keen’s article entitled “The Principal and Interest on Debt Myth 2”. If I understood the comments correctly, he was owned! I have never been impressed by Steve Keen as somehow, with my limited knowledge, his explanations never ring true. I never hear him screaming about bankers, about central banks. It makes me wonder why. Maybe he’s just too involved in his small world that he can’t see the forest for the trees, or maybe, as you said, he’s trying to maintain his academic position. He might win me over if I started hearing him go after the bankers/central banks – the system! Until then, nope.

    Thanks, Trivium. I’m going to save your explanations.

    Dr. Diablo

    ChrisM very smart.

    Interesting that the way to disassemble the machine is to mis-price commodities. Because they’re real things. You can misprice paper, but as they are basically illusions, it has no harmful effects (as such). The reason to misprice commodities (down) is to cause the misprice of paper (up), and therefore have nation/worldwide wealth transfer to certain paper-users and holders. But the machine breaks at the point and cause of the mispricing of real things, which cannot be made up of thin air.


    I wish you deflationists would open your eyes. These items are at or near record high:
    new cars
    college tuition
    stock market
    price of treasury bonds
    construction projects

    Heck I wish the cost of construction projects would be cut in half for crying out loud. There are tens of thousands of infrastructure projects on the shelf waiting for funding. If the cost to construct were to go down (DEFLATION) we would have more projects and more jobs. It is so simple.

    Chris M


    I first learned about the physiocrats when reading the book by Charles Walters, “Unforgiven. The American Economic System Sold for Debt and War.” I honestly have not researched their proclamations any further than that. What I do know is that the physiocrats understood the concept that “the just price of an industrial good should be just as much over and above the cost of materials as the cost of labor.”

    Carl Wilken, who helped the United States Congress implement the parity price laws during World War II and briefly after, understood this well too. All wealth comes from the soil. When you earn income by applying labor to raw materials, the economy is debited and nature credited. Until the sun stops shining and/or the earth can’t produce, you can credit nature ad infinitum. When you inject credit, it is the economy debited, the economy credited. The borrowed capital plus interest has to be paid back.

    As a farmer, Hotrod, you should understand this well. I am happy to hear you are in that occupation. I ran my own certified organic farm in Wisconsin for some years. I will always remember the day my dad came out to the field and informed me how the the stock market was crashing, back in 2008. I told him it didn’t affect me, because I still had to cultivate and water my crops, and the crops didn’t seem to care one bit about the stock market.

Viewing 13 posts - 1 through 13 (of 13 total)
  • You must be logged in to reply to this topic.