Deflation News Feed


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    Quote from article, The 2012 Recession: Are We There Yet – 25 September 2012 – Lakshman Achuthan

    “…For the U.S., the economy is recessionary despite all of the extraordinary efforts by the Fed over the past four years. In that sense, one might argue that, as far as the economy is concerned, the Fed’s actions have become increasingly ineffective. The plunge in the velocity of money to record lows tells us that the Fed is pushing on a string – so no matter what they do there will only be limited traction. Basically, the recession has to run its course.”

    MY COMMENT: A plunging velocity of money is the definition of deflation. Now I can’t help wondering what will be left of an economy after this latest recession has “run its course”, given that most people are still looking around wildly wondering when our recovery from the last recession is going to show.

    Quote from The Fed, Deflation, and the Candyman
    – 20 September 2012 – Paul Vigna, the Wall Street Journal

    “…[W]asn’t the timing [of QE3] at least kind of curious?

    The economy, at least traditionally measured, isn’t in recession, although the growth that is visible is weak, and vulnerable. You can make a case the Fed is preempting the effects on the U.S. economy of a global slowdown that’s becoming apparent by the day.

    There may be something else the Fed (and other central banks, for that matter) are fighting, although they won’t talk about it: deflation. To a central banker, “deflation” is like the Candyman (from the scary movie, not Sammy Davis). Say its name five times in the mirror, and it appears. So they never talk about it, even though they’re well aware of its shadowy existence. They’d much rather talk about inflation, so much so people get that crammed in their heads, start expecting it, and plan against it; it’s called managing expectations.

    Doesn’t mean deflation it isn’t there, though.

    “I see nothing in this latest and most dangerous round of monetary anarchy that will reverse the process of deflationary debt deleveraging,” Nomura’s noted bear Bob Janjuah wrote in a note this week. “I am deeply worried that what Bernanke is now de facto saying is that the real underlying economic and jobs situation is much worse than we all think.”

    MY COMMENT: Me thinks Ben’s afraid of summoning the Candyman, so rather than saying we’re giving you QE3 to fight the ominously precarious DEFLATION, Ben implies instead that we’re giving you QE3 to bring back jobs. Certainly explains the absolute absurdity of buying mortgages in order to create jobs. Ergo, he’s not buying mortgages to create jobs. He’s buying mortgages to backstop the banks against imminent deflation.


    Quote from article,Why QE Won’t Create Inflation Quite as Expected – 27 September 2012 – Charles Hugh Smith

    Add all this up and here’s what we get: money is not just being created by the Fed, it’s being destroyed by declines in asset valuations and writedowns of impaired debt. Credit may be expanding but the top rung of households is paying down debt, not borrowing more, and the bottom 95% are unable to add much to their already staggering debt load.

    Incomes are declining, providing a smaller base for both spending and borrowing. The top 5% may be experiencing a “wealth effect” as stocks soar but 7 million people cannot levitate the entire $15 trillion U.S. economy much while the incomes of the 137 million other workers are stagnant or down.

    Money velocity is plummeting and banks are hoarding Treasuries as much-needed collateral.

    It’s difficult to see how these forces could generate inflation. There may be new money and credit being created, but very little of it is flowing to households whose spending in the real economy drives inflation.

    MY COMMENT: I don’t have much to add. Charles sums up the reality of our current deflation perfectly in his article. I can only conclude, as I have argued in the TAE comments, inflationists are misjudging the implications of price rises in toothpaste and tomatoes. Some isolated cost of living increases do not offset the implications of vast deflation as described by Charles Hugh Smith.

    Golden Oxen

    Inflation is a monetary event, not an economic event.

    Check back and see how the economies of Germany, Argentina, Zimbabwee,
    Mexico etc, were performing during their historic inflations.

    I watch the price of toothpaste and tomatoes, as well as all of life’s necessities, I find they give a more accurate picture of inflation than my pet theories.

    You are correct however, the Academics, like yourself. tend to ignore such mundane matters. If your one of the lucky ones that sucks the teats of government for a living, they have no meaning whatsoever.


    GOod grief!
    For the last time: Only banks can issue debt (what we call money) that comes with interest attached. Nobody can inflate his/her income because nobody can generate his/her money, it HAS to come from a bank (central or otherwise) by means of a loan taken by someone else (employer or government). Those someonelses up the food-chain are either going belly up, cannot, or simply will not take anymore debt.
    It’s a colossal Ponzi that will implode, not explode. How hard is that to figure out?

    Golden Oxen

    Phew, Thanks for that theory, have heard it many a time, but didn’t mind hearing it again. The first time I heard it was from a friend of mine who was a student majoring in economics. He was explaining it to me over a 10 cent cup of coffee we were having in a Dunkin Donuts near Harvard Square. Thank God I knew he was a tad touched, nice well intentioned guy, but mad as a hatter
    He is currently in that camp of loonies that claim we have had no inflation, because we don’t understand how to adjust things, you know what I mean.

    That type of meat head that tells you the 24,000 dollar car you are driving that used to be 2100 didn’t go up at all in price , it actually went down because of all the great improvements.

    Oh my gosh, I just realized, you are one of those kooks yourself. Sorry, Have a nice day.


    A few quick quotes from audio interview with Danielle Park on TalkDigitalNetwork:

    “A lot of key risk assets are below the [QE Infinity] announcement a few weeks ago…”

    “Commmodity prices have probably peaked in the late 2007 cycle with the credit bubble…Here we are 6 years later and it seems that was the case…You keep making lower lows….You’ve got tons of money chasing after what is slowing demand globally. This QE has not been a friend to the producers…”

    “The reality is with the second quarter with all the QEs…[the US] was barely able to grow 1%…We must be in a recession already.”

    MY COMMENT: Park is a down-to-earth, plain speaker, but smart as a whip and brave enough to speak her mind. Nevertheless, it’s interesting to note how–just like the rest of the financial analysts and economists on the planet–we’ve all been drawn into discussions on QE’s performance vis-a-vis economic numbers. Instead, we should simply recognize there is no honest intention on behalf of the Fed to issue QE for the sake of jobs or the economy. That’s a ruse we have all fallen for (save, perhaps, Ilargi) as evidenced by constant comparisons of economic data to QE announcements. The reality is QE has one purpose only: it’s a wealth transfer to the banks to prepare for the ongoing deflation. The Fed’s primary concern is backstopping the banks against their deflating balance sheets which threaten to implode globally. We’re all missing this key element in the debates. But Park’s analysis is still interesting to track because she’s one of the few who called and continues to call for our current deflation.

    The Source of High Inflation: Government Spending

    Inflation is generally viewed as a monetary phenomenon (print money excessively and you get inflation), but let’s use a very simple definition: any loss of purchasing power. If your income buys fewer goods and services, for whatever mix of reasons (geopolitical, weather, monetary, fiscal, etc.), that’s inflation “on the ground.”

    Consider this breakdown of the components that together make up the standard measure of inflation, the Consumer Price Index (CPI): (courtesy of What are the obvious major sources of inflation?

    Energy, medical costs and college tuition.

    What differentiates medical and college costs from everything else?

    The Federal government’s direct role in these markets.

    The Central State directly spends over $1 trillion a year on Medicare and Medicaid, and controls private spending with rules and regulations.

    As for college costs: could their incredible expansion have anything to do with the Central State backing $1 trillion in student loans?

    My comment:

    Let’s look deeper into the accusations.

    The federal gov. is involved because private enterprise has control of where the gov. money should be spent so that private enterprise can profit the most.

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