What’s Next: Deflation, Inflation, Or Hyperinflation?


Posted on 3rd November 2015 by Administrator in Economy

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Submitted by Bill Bonner via Bonner & Partners (annotated by Acting-Man.com’s Pater Tenebrarum),

Divided Opinions

We are not the only publishers to offer opinions. And not the only ones with alternative points of view. So, to answer these questions, let’s look first at the range of opinions on offer…

First, there is “the authorities must know what they are doing… besides, I have more important things to think about” camp. This is by far the largest group: hoi polloi. The masses. The lumpenproletariat.


border collie

Saved by the border collie

 There may be some grumbling and kvetching. But most people count on the feds to manage the economy, foreign policy, the future, and the government. They expect mistakes from time to time. But they also believe the system can be trusted to produce an acceptable, although perhaps not always ideal, outcome.

And if not, God help them. Because the difference between the outcome if they bothered to think about it and the outcome if they didn’t is the same. They have no ability to influence public policy… and not much room to maneuver in their private lives.

They get salaries, pensions, Social Security. They need jobs, mortgages, student loans, and medical insurance. They have little capital to invest or protect. They depend so heavily on “the system” that they can’t afford to believe there is something deeply wrong with it. They go along. They get along.



Going along, getting along…


The Chinese Growth Engine is Sputtering


Posted on 14th August 2015 by Administrator in Economy |Politics |Social Issues

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Guest Post by Jeff Desjardins

By the turn of the millennium, China was the sixth most productive nation in the world with a GDP comparable with France or Italy at US$1.2 trillion.

Economic growth didn’t stop there, and GDP increased ten-fold over the last fifteen years to surpass US$10 trillion. In “real” terms using PPP, China is now actually the largest economy in the world.

The rest of the world has benefited extensively from China’s coming out party. Cheap products flooded the shelves of the developed world, and China bought the world’s raw materials when no one else wanted them. Unfortunately, every good time must come to an end.

A Sputtering Chinese Economy

It hasn’t exactly been a secret that China’s economy has been slowing. The above radar graph from a research note by Credit Suisse shows that the economic news out of China has been tough to swallow as of late. Today, China rattled global markets even further by announcing a devaluation of the yuan by 1.9% to combat poor exports, which fell by 8.3% in July. This is the country’s largest currency devaluation since 1994.


Deflation, Hyperinflation, Stagflation, and Where We Are Going

1 comment

Posted on 31st March 2015 by Administrator in Economy |Politics |Social Issues

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Guest Post by Jesse

This is a repost of a column from four years ago almost to the day.

This is where I make the case most explicitly for the stagflation forecast I made in 2005.

Although I add one parenthetical note and some underlining for emphasis, otherwise I did not have to change a word. I could have rewritten a few things a little more smoothly but at this point why bother.

I believe that things are playing out pretty much as I had thought. The ‘top down’ approach to monetary stimulus favored by the Fed and their Banks and their politicians is fostering more inequality and slack aggregate demand while inflating select asset prices, a type of stagflation. The ‘inflation’ component of that has not yet set in yet generally, but is certainly visible to anyone who uses incidental things like healthcare and food.

I think that the same dynamic is playing out in Europe and the UK.

It will end involuntarily in a social dislocation, or by a voluntary reform. Since the oligarchs have apparently not yet been satisfied in their acquisition and looting, they believe that they can keep pushing the envelope for now.

One new area of thought for me now is how China and Russia and a few of their friends will attempt to implement a new regional currency and a global reserve currency with some inclusion or reference to gold, and perhaps silver. That they are leaning into this area is to be found in their own words and actions.

What I am struggling with is how they might do this without exposing themselves to currency manipulation and rigging, which is probably a lot easier to accept as a given now than it was in 2011, although it was certainly occurring before all these market rigging scandals broke. I don’t think a market was left untouched.

I suspect it will center around the terms for the exchange and the valuation or peg. A misstep will open them to the predations of the global hedge funds and the Banks, and the status quo centered on the Dollar.




Posted on 30th March 2015 by Administrator in Economy |Politics |Social Issues

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About that housing recovery. The U.S. population has grown by 8% since 2005, while the number of households has grown by 5%. In addition to the weak overall household growth, due to stagnant wages, massive student loan debt, and only Obama shit service jobs, there have been no new owner occupied households. The number of owner occupied households is down 1%, while the number of rental households has soared by 16%.

The home ownership rate is now at a two decade low and sits at the same level it did in 1970, before Nixon closed the gold window and unleashed a debt and inflation tsunami upon our nation. The Federal Reserve solution to every bubble they create is to print enough to create another bubble. They have expanded their balance sheet by almost 600% since 2008, and have succeeded in crushing the middle class, senior citizens, and young people who should be buying their first homes.



Santelli Stunned As Janet Yellen Admits “Cash Is Not A Store Of Value”


Posted on 28th March 2015 by Administrator in Economy |Politics |Social Issues

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Tyler Durden's picture

Intended warning or unintended slip? After Alan Greenspan’s confessional admission that

Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it,”

we found it remarkable that during the Q&A after her speech today that Janet Yellen, when asked about negative rates, admitted that

“cash in not a very convenient store of value,”

seemingly hinting at Bernanke’s helicopter and that there will be no deflation in The US ever…  

Rick Santelli then sums it all up perfectly…  



Posted on 2nd March 2015 by Administrator in Economy |Politics |Social Issues

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The BLS put out their monthly CPI lie last week. They issued the proclamation that inflation is dead. Did you know your costs are 0.1% lower than they were one year ago. They then used these deflation numbers to proclaim your real wages soared last month. It’s all good. The American consumer is so flush with cash, they decided to spend less money for the second month in a row. The Wall Street shysters are so happy with declining consumer spending, declining corporate profits, and a global recession, they pushed the NASDAQ up to 5,000 for the first time in 15 years. Hey!!! That was the year 2000. Things really got better after that milestone.

So we know gasoline prices have plummeted in the last year (but are up 20% in the last month), but I’m trying to think of other things I use in my everyday life that have declined in price. Maybe going through the BLS detailed list will jog my memory. Here is the link to their data:


Let’s see how much deflation we’ve experienced in the last year for things we need to live our everyday lives.

Beef and veal  +22.5%

Ground beef  +21.0%

Steaks  +14.9%

Pork  +7.4%

Ham  +11.5%

Whole Chicken  +6.1%




Posted on 20th January 2015 by T4C in Economy |Politics |Social Issues |Technology

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JANUARY 20, 2015

It has become common knowledge in the mining industry here in Canada that the large oil companies began holding strategy sessions over a year ago to address this downturn in the market. The “sustainable cost reduction strategies” were slow in coming at first but are now being developed and implemented from one day to the next.

The industry is witnessing layoffs in the tens of thousands with more to come. For each energy sector job lost there will be 4 or more service industry jobs lost as well. This spider web of cause and effect will mean a slow down in the broader economy with reduced revenues for everything from local pubs and restaurants, to clothing stores and regional manufacturers.

The planning sessions which began a year ago tell us that this market turn was not happenstance. The communication lines between the heads of the energy companies and trans-border banks have intersected with the mandates of the international institutions which are engineering and implementing the economic transition to a multilateral framework.

The deflation which we have discussed throughout the last year is now descending in full force. This deflation is allowing for a massive contraction of the money supply to facilitate the transformation of each segment of the international monetary system.




Posted on 13th January 2015 by Administrator in Economy |Politics |Social Issues

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The plunge in gas prices over the last six months, from an average of $3.70 per gallon in July to $2.10 per gallon has revealed many truths that you won’t hear being discussed by the MSM or your government keepers. From my perspective, with four cars in the family, this is unequivocally a great development. I estimate it will save me $2,000 per year if prices remain this low.

So why are the financial markets in an uproar over the fall in oil prices? Why are central bankers upset that it will lead to lower costs for consumers? Why is Wall Street and corporate America angry about lower oil prices? Why are government bureaucrats and politicians worried about their tax revenues?

It’s because these people and organizations don’t give a fuck about you. It’s a big club and you’re not in it. What’s good for them is bad for you. They don’t treat oil and gas as a cost of living. They treat it as an investment in which to make billions in profits at your expense. Every person in America is benefiting from the fall in their energy costs. Oil is an input in virtually everything we buy. Your cost of living an every day existence is going down for once. And the oligarchs don’t like it. They pontificate about the dangers of deflation. The danger is to their riches, power and control. Lower prices are a godsend to the average American family that is one paycheck away from financial disaster.

The second revelation is how immense the taxes are on a gallon of gasoline. If you go to this link, you will see the actual wholesale cost of a gallon of gasoline is only $1.27 per gallon. That begs the question, why are we paying $2.10 per gallon?


In PA, I’m still stuck paying $2.30 per gallon, and the reason why is in the chart below. My fine state of Pennsylvania now has the highest level of gas tax in the entire country. They increased it by 10 cents per gallon on January 1, after increasing it by 10 cents per gallon last year. It will increase by another 8 cents in 2017. I get to pay the highest gas taxes in the nation for the privilege of sitting in horrific traffic, blowing out tires after hitting one of the thousands of potholes along my driving route, supporting a bankrupt public transit system and their thousands of union drones, waiting in gridlocked traffic because traffic lights don’t work below 10 degrees, and withstanding six years of construction on the Northeast Extension by union construction workers. Their motto is: We’re slow, but at least we’re expensive.

There are multiple executives from the PA Department of Transportation in state prison for the massive fraud and corruption that permeates Pennsylvania agencies. We pay a 50% union premium for all the road construction projects. On top of the gas taxes, PA has increased tolls by 100% over the last five years. And this was all done under a Republican governor with a Republican legislature. These criminals say the tax money and the tolls pay for the roads, but it’s a crock of shit. It goes into the general fund and is used to pay the gold plated pensions of the government drone workers.

Taxes on gasoline and diesel for transportation by U.S. state in U.S. cents per gallon as of January 2015[3]
State Gasoline tax
(includes federal tax of 18.4¢/gal)
Diesel tax
(includes federal tax of 24.4¢/gal)
Pennsylvania 68.9 88.6
New York 68.7 73.1
Connecticut 65.8 78.9
California 63.8 65.0
Hawaii 63.4 66.8
North Carolina 56.2 62.2
Washington 55.9 61.9
Florida 54.8 58.1
West Virginia 53.0 59.0
Nevada 51.6 53.0
Rhode Island 51.4 57.4
Wisconsin 51.3 57.3
Vermont 50.4 56.4
Oregon 49.5 54.7
Illinois 49.1 63.9
Michigan 48.7 58.4
US (Volume-Weighted) Average 48.5 54.5
Maine 48.4 55.6
Indiana 48.3 68.7
Minnesota 47.0 53.0
Ohio 46.4 52.4
Montana 46.2 52.9
Kentucky 46.0 49.0
Maryland 45.8 52.6
Georgia 44.9 54.5
Massachusetts 44.9 50.9
Nebraska 44.9 50.3
Idaho 43.4 49.4
Utah 42.9 48.9
Kansas 42.4 50.4
Wyoming 42.4 48.4
New Hampshire 42.2 48.2
District of Columbia 41.9 47.9
Delaware 41.4 46.4
North Dakota 41.4 47.4
Virginia 40.8 50.5
Colorado 40.4 44.9
Iowa 40.4 47.9
South Dakota 40.4 48.4
Arkansas 40.2 47.2
Tennessee 39.8 42.8
Alabama 39.3 46.3
Louisiana 38.4 44.4
Texas 38.4 44.4
Arizona 37.4 51.4
New Mexico 37.3 47.3
Mississippi 37.2 42.8
Missouri 35.7 41.7
Oklahoma 35.4 38.4
South Carolina 35.2 41.2
New Jersey 32.9 41.9
Alaska 29.7 36.2


You can see the amount of gas taxes you are paying. A full 30% of the price I pay at the pump is taxes. I’m paying $1,400 per year in gas taxes, on top of all the income taxes, sales taxes, liquor taxes, and the myriad of other taxes I’m forced to pay at the point of a gun. And what good does it get me? It funds this welfare/warfare state that keeps me under constant surveillance and wages un-Constitutional wars around the world.

Remember. What is good for the government, central bankers, Wall Street, oil companies, and mega-corporations is not good for you. Know your enemy.


1 comment

Posted on 6th December 2014 by Administrator in Economy |Politics |Social Issues

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In 1943 inflation was not in the best interests of those running the country. Today, with $18 trillion of debt and $200 trillion of unfunded liabilities, inflation is essential to the survival of the ruling class. It seems paying more taxes is always considered a good thing by the ruling class.

In 1943 saving benefited the ruling class, so it was encouraged. After 9/11 and ever since the government has promoted and encouraged spending and going further into debt to save the country.

Every time a Federal Reserve banker speaks they promote inflation as essential to a well functioning economy.

Only a lone voice in the wilderness has consistently spoken the truth about the Federal Reserve and inflation.

The willfully ignorant masses have been so dumbed down by our government run public educational system, they don’t understand what the Fed has done to them over the last century.

They may not understand charts and calculating the 95% loss in purchasing power of their dollars, but they may understand this:


 How is government created inflation working out for you?

Debt, Propaganda And Now Deflation


Posted on 14th November 2014 by Administrator in Economy |Politics |Social Issues


  Guest Post by

Dorothea Lange Negro woman who has never been out of Mississippi July 1936

Looks I have to return to the deflation topic. I’m a bit hesitant about it, because the discussion always gets distorted by varying definitions and a whole bunch of semi-religious issues. The Automatic Earth has for many years said that an immense bout of deflation is inevitable because of global debt levels, and it’s all only gotten a lot worse since we first said that. Our governments and central banks have ‘fought’ deflation with more debt, and that was always the stupidest idea in human history. Or at least, most of us were stupid for believing it would work, or was even intended to.

Just so we don’t get into yet more confusion, i probably need to explain that the debt deflation we’re talking about here is not some subdivision like consumer inflation or price inflation or cookie inflation, those are just hollow and meaningless terms. Debt deflation is deflation caused by too much debt, and the deleveraging it must and will lead to. Deflation does not equal falling prices, those are merely an effect of it.

The reason this matters is that when you equate inflation and deflation with rising or falling prices, you’re not going to be able to know when you actually have deflation. Because prices can rise for all sorts of reasons. Inflation/deflation is the money/credit supply in an economy multiplied by the speed at which money is spent in that economy, the velocity of money.

It should be obvious that prices for some items can still rise, certainly initially, when deflation sets in. Producers that see less sales can try to raise prices for their remaining buyers. Basic necessities will always be needed. Governments can raise taxes. Rising/falling prices tell us only part of the story, and with a considerable time delay.

Ergo: rising/falling prices are a lagging factor, and if you look at them only, you will have missed the point where deflation has set in. What follows, obviously, is that you can’t measure deflation by looking at consumer prices (CPI) or production prices (PPI) numbers. You’d be way behind the curve. CPI and PPI tell you something, but they don’t tell what causes falling or rising prices. And that is a valuable thing to know.

I see even John Mauldin in this week’s The Last Argument of Central Banks talk about ‘good deflation’, but that doesn’t exist any more than cookie inflation, sorry, John. Prices for some items may fall due to innovation etc. while an economy booms, but if you call that deflation, you’ll miss what’s really deflation when it arrives.

Deflation is always bad. It either occurs when money/credit is so short that people can not get their hands on it no matter how hard and productive they work, and how much demand there is for their products, or it occurs when people are too poor, too much in debt or too reluctant to part with what they have.

In a deflation, people spend only what they absolutely must, provided even that they can afford to, which leads to large swaths of an economy being liquidated. Falling prices lead to falling wages lead to ever further falling prices lead to factory closings lead to more people who can’t afford to spend which leads to closings which leads to less spending which leads to faling prices etc. This continues until the debt has been deleveraged. Governments will lose tax revenue and raise taxes, but soon enough they will in quick succession disband and be replaced, rinse and repeat until even essential services can no longer be provided.

Until recently, a shrinking money/credit supply was very clearly not in the cards. Central banks have gone absolutely nuts in their stimulus plans, and this has artificially kept price levels up somewhat, though far less than they, and scores of ‘experts’ had hoped and expected. Now that game, too, is up. Japan went crazier than ever the other day out of fear that falling oil prices would sink consumer spending even more, but the US Fed has cut QE. That is an admission it has failed to do what it officially was supposed to, not the sign of triumph it’s made out to be, as in ‘the economy is doing so well, it doesn’t need our support anymore’.

Central banks have spent like maniacs, and consumer spending only keeps falling. Just ask Japan. And while you’re at it, ask them how entrenched deflation can become even in an economy that still has the benefit of growing world market to sell its products in. We won’t have any such benefit. The world has stopped growing, and there’s no massaging of numbers left strong enough to hide it. Not that it won’t be tried. As I said earlier this week, we now live in a world built on debt and propaganda.

Since QE and other ‘plans’ never reached the real economy, most nations’ money supplies have also either fallen or at best remained stagnant. We have the perfect set-up for deflation, and we therefore have deflation. It hasn’t reached the US yet, though we should be careful with that because the numbers being reported are notoriously flaky. But it has reached Europe and Asia. Which means the US is only a matter of time. And people, reluctantly, start taking notice. Steve Hochberg and Pete Kendall penned the following for Bob Prechter’s Elliott Wave:

Deflation Rearing its Ugly Head in Subtle and Not-So-Subtle Ways Around the Globe

According to the latest figures, deflation is now perched on China’s doorstep. In September, China’s consumer price index was up 1.6%, but its producer price index fell 1.8%. The CPI increase was its lowest since 2010. [..] in September, demand for electric power, a “bellwether for China economic activity,” fell 8.4% from the prior month, the second straight monthly decline.

“Deflation is the real risk in China,” stated the chief economist at a Hong Kong bank. In Europe, deflation is no longer a possible risk; it’s reality. In September, eleven of fifteen European Union members experienced lower goods prices, and the latest quarter-over-quarter Eurozone growth in real GDP is zero.

With Alice-in-Wonderland naiveté, U.S. financial media place the United States outside the risk of global deflation. Headlines talk of “Mild Inflation” and insist that the U.S. will gain “From Good Deflation.” On October 14, Bloomberg reported that consumer spending is strong enough “to steer the U.S. economy safely through the shoals of deteriorating global growth and the turbulent financial markets.” In early September, we stated that it was only a matter of time before economic weakness and deflation (which will be anything but good) jump the Atlantic and Pacific oceans and arrive in the U.S.

According to the U.S. Labor Department, real wages for full-time employees averaged $790 a week in the third quarter, about $1 less than in the third quarter of 2007. “There’s been no net gain for workers since 1999.” In recent months, spending has been uneven. Retail sales fell 0.3% in September. Most economists are baffled: “one of the great mysteries is why the U.S. has lacked inflation despite all the money being pumped into the economy.” A study by the St. Louis Fed finds that the answer is “a dramatic increase in the private sector’s willingness to hoard money instead of spend it.”

Note: the ‘hoarding meme’ is habitually used by economists, re: Bernanke and his Chinese savings glut, to point out situations which are more often than not characterized by people being too poor to spend, not sitting on anything at all. For economists, if people don’t spend, it must be because they save, never because they’re poor. I kid you not.



For years now, the Fed along with most economists have anticipated the imminent return of inflation, but it continues stubbornly subdued. This long-term chart above of the CPI shows a succession of lower highs since the early 1980s, as inflation turned into disinflation, which is on the cusp of leading to outright deflation. Some argue that the CPI is rigged to show milder levels of inflation, but the bottom graph shows the same steady move toward the zero line in the Personal Consumption Expenditures Index, an alternate inflation measure favored by the U.S. Fed.

When outright deflation hits, recognition of it will play an important role. Once its presence becomes widely observed, investors and the debt markets will belatedly take defensive action. Eventually, notes Conquer the Crash, “default and fear of default exacerbate the trend as it causes creditors to reduce lending. A downward ‘spiral’ begins feeding on pessimism just as the previous boom fed on optimism.”

Moving from theory to practice, we end up with our old friend Ambrose. Though he confuses inflation and consumer prices, and thinks they’re one and the same thing, he does have useful numbers:

Spreading Deflation Across East Asia Threatens Fresh Debt Crisis

Deflation is becoming lodged in all the economic strongholds of East Asia. It is happening faster and going deeper than almost anybody expected just months ago, and is likely to find its way to Europe through currency warfare in short order. Factory gate prices are falling in China, Korea, Thailand, the Philippines, Taiwan and Singapore. Some 82% of the items in the producer price basket are deflating in China. The figures is 90% in Thailand, and 97% in Singapore.

These include machinery, telecommunications, and electrical equipment, as well as commodities. Chetan Ahya from Morgan Stanley says deflationary forces are “getting entrenched” across much of Asia. This risks a “rapid worsening of the debt dynamic” for a string of countries that allowed their debt ratios to reach record highs during the era of Fed largesse. Debt levels for the region as a whole (ex-Japan) have jumped from 147% to 207% of GDP in six years.

These countries face a Sisyphean Task. They are trying to deleverage, but the slowdown in nominal GDP caused by falling inflation is always one step ahead of them. “Debt to GDP has risen despite these efforts,” he said. If this sounds familiar, it should be. It is exactly what is happening in Italy, France, the Netherlands, and much of the eurozone. Data from Nomura show that the composite PPI index for the whole of emerging Asia – including India – turned negative in September.

China itself is now one shock away from a deflation trap. Chinese PPI has been negative for 32 months as the economy grapples with overcapacity in everything from steel, cement, glass, chemicals, and shipbuilding, to solar panels. It dropped to minus 2.2% in October. The sheer scale of over-investment is epic.

The country funnelled $5 trillion into new plant and fixed capital last year – as much as Europe and the US combined – even after the Communist Party vowed to clear away excess capacity in its Third Plenum reforms. Old habits die hard. Consumer prices are starting to track factory prices with a long delay. Headline inflation dropped to 1.6% in October. This is so far below the 3.5% target of the People’s Bank of China that it looks increasingly like a policy mistake. Core inflation is down to 1.4%.

China has flirted with deflation before: during its banking crisis in the late 1990s, and again during the West’s dotcom recession from 2001-2002. Both episodes proved manageable. This time the level of debt is greater by orders of magnitude, with a large chunk in trusts, wealth products, and other parts of the shadow banking nexus, and a further $1.2 trillion in “carry trade” loans from Hong Kong.

Standard Chartered thinks total debt has reached 250% of GDP. This is roughly $26 trillion, the same size as the US and Japanese commercial banking systems put together, and therefore a headache for us all. Larry Brainard from Trusted Sources says China is sliding towards a European debt-compound trap. “It’s arithmetic.Deflation will kill you if you’re leveraged. It is just a question of how quickly. We don’t know how big the problem is because China is playing a game of three-card Monte and moving the debt to different buckets,” he said.

Asia is not yet in a full-blown currency war, but no country can stand idly by as neighbours dump toxic deflationary waste on their front lawn. Korea has threatened to force down the won, pari passu with the yen. The central bank of Taiwan has been intervening. These skirmishes are happening in a region of festering grievances and territorial disputes, with no Nato-style security structure – or for that matter EU-style soft governance – to damp down fires.

[Chinese] purchases of foreign bonds have dropped to zero, down from $35bn a month at the start of the year. The yuan has appreciated 22% against the yen since June, and 50% since mid-2012. It is up 12% against the euro since the early summer. China is in effect strapped to the rocketing dollar through its quasi-peg, increasingly a torture machine.

George Magnus from UBS says this cannot continue. “What is happening in the property market is the tip of the iceberg for the whole economy. China will have to resort to monetary reflation over the winter, and I think this will include a lower yuan. We are heading into a currency war,” he said.

We have the debt. And we recognize it. Still, the line politics and media feed us is that more debt can be a good thing, that we need more debt in order to attain what they like to call ‘escape velocity’ from the financial crisis caused by that same debt. Oil on fire.

We have the propaganda. We don’t always recognize it for what it is, but the, that’s the idea, isn’t it? It’s to make people think that things are not really what they really are. That we need to spend more public funds on saving banks, not saving people, or else armageddon. There’s hardly a news story left today that is not to an extent phrased by propaganda.

And now we have deflation. Which is not the falling prices, though they are a – delayed – symptom. Still, other symptoms are as valid, as nobody is spending. Mass unemployment in southern Europe is a symptom. West Texas oil at $74 dollars today is one. The Chinese economy, allegedly still growing at $7.5%, but at 250% debt-to-GDP, is another. Throw in 207% debt-to-GDP debt levels across southeast Asia.

With deflation becoming a daily topic in our propagandistic media, despite the fact that governments and central banks are vehemently allergic to it (for good reasons), rest assured that we are entering a next phase of the crisis. Just not one that they would like you to think we are. When debt starts being deleveraged for real, deflation cannot be avoided. And debt must be deleveraged, we can’t sit on it till Kingdom Come and keep adding more while we’re at it. That was never in the cards. And we’ve accumulated too much of it to ever outgrow it. We simply can’t sell or make enough iPhones to accomplish that. Or eat enough burgers, hard as we try.

Our world, our life, has been built on debt and propaganda for many years. They have kept us from noticing how poorly we are doing. But now a third element has entered the foundation of our societies, and it’s set to eat away at everything that has – barely – kept the entire edifice from crumbling apart. Deflation.

It’s time to check where your basic needs will come from when it becomes first harder and them impossible to obtain them from the sources you have been used to. And please, get out of debt. Debt during deflation is a cruel and unforgiving mistress. Think of deflation as a biblical plague.

The Experiment that Will Blow Up the World


Posted on 1st November 2014 by Administrator in Economy |Politics |Social Issues

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The BoJ Goes Even Crazier

It has been clear for a while now that the lunatics are running the asylum in Japan, so perhaps one shouldn’t be too surprised by what happened overnight. Bloomberg informs us that Kuroda Jolts Markets With Assault on Deflation Mindset.

The policy hasn’t worked so far, in fact, it demonstrably hasn’t worked in Japan in a quarter of a century. Therefore, according to the Keynesian mindset, we need more of it. Mr. Kuroda therefore delivered a surprise spiking of the punchbowl that immediately impoverished Japan’s consumers further by causing a sharp decline in the yen:


“Today’s decision to expand Japan’s monetary stimulus may be regarded as shock treatment in the central bank’s effort to affect confidence levels. Bank of Japan Governor Haruhiko Kuroda’s remedy to reflate the world’s third-largest economy through influencing expectations saw the yen sliding and stocks climbing.

Kuroda led a divided board in Tokyo in a surprise decision to expand unprecedented monetary stimulus. Bank officials hadn’t provided any hints in recent weeks that additional easing was on the cards to help reach the BOJ’s inflation goal. Kuroda, 70, repeatedly indicated confidence this month that Japan was on a path to reaching his 2 percent target in the coming fiscal year. Just three of 32 economists surveyed by Bloomberg News predicted extra easing.

“We have to admit that this is sort of a second shock — after we had the first shock in April last year,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo, referring to the first round of stimulus rolled out by Kuroda in 2013. Kanno, who used to work at the BOJ, said “this is very effective,” especially because it comes the same day as the government pension fund said it will buy more of the nation’s stocks.


(emphasis added)

So why is there allegedly a “need to combat the deflation mindset”? Below is a chart of the recent increases in Japan’s CPI.

In actual practice, it matters little how they have come about – the fact that CPI was inter alia boosted by a hike in consumption taxes does not alter the fact that every consumer in Japan is now getting fewer goods and services for his income and savings than before. No consumer is going to a shop and saying to himself “the fact that things are now vastly more expensive than before somehow shows we are still in deflation, because it has happened for transitory reasons”. All he knows is that he is getting less for his hard-earned money. Mr. Kuroda is evidently not moved by such considerations.

  1-japan-inflation-cpiJapan’s CPI is recently growing at a 3.2% annual rate. Obviously, this means one must “combat the deflation mindset” – click to enlarge.



Bloomberg’s article continues along precisely these lines:


“A decline in demand following April’s sales-tax increase and the tumble in oil prices are putting downward pressure on prices in Japan. Today’s decision came hours after a government report showed that core inflation eased to the slowest pace in six months in September.

The 3 percent gain in core consumer prices — the BOJ’s main gauge — was just 1 percent with the effects of April’s sales-levy hike stripped out.

The BOJ today reduced its estimate for the core consumer price index, which excludes fresh food and increases to sales tax, to 1.7 percent for the fiscal year through March 2016, from 1.9 percent previously. The bank kept its forecast at 2.1 percent for the following year.

The central bank won’t hesitate to act again if needed, Kuroda said, pointing out there’s still room for additional measures. The BOJ acted as skeptical views mount over the effect of quantitative easing, according to Citigroup Inc. economists Kiichi Murashima and Naoki Iizuka. “If the impact of today’s action on the economy and prices proves limited, the impact on financial markets may also prove short-lived,” they wrote in an e-mailed note.

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The above is a corollary to the recently heavily propagated idea that falling oil prices are somehow “bad” for oil consuming countries because they might lead to lower prices! You can read this nonsense in every statist rag, from the Financial Times to the Economist. If this doesn’t prove how utterly absurd the basis of today’s central bank policies is, nothing ever will. These people have taken complete leave of what was left of their senses.

Although it shouldn’t be necessary to say this, here is a reminder: rising stock prices are not “proof” that things are fine. If that were the yardstick by which to measure the “success” of central bank money printing, the best performing economies in the world would be those of Venezuela, Argentina and Iran.

Learn More On How to Build Credit.


  2-BoJ assetsBoJ credit, as represented by the asset side of its balance sheet. Still not enough! – click to enlarge.


Kuroda’s Policy Will End in A Catastrophe

In order to explain why the pursuit of Kuroda’s policy is edging ever closer to a catastrophic outcome, we have to delve a bit into the details of Japan’s monetary data. In spite of the BoJ’s “QE” reaching record highs, it mainly creates bank reserves and furthers carry trades. The economy sees no private credit growth so far.

Commercial banks in Japan continue to shrink the stock of fiduciary media – this is to say, they are reducing outstanding credit, which makes more and more unbacked deposit money disappear. Hence, Japan’s money supply growth has recently decline to a mere 4.3% year-on-year, as the rate of contraction in outstanding fiduciary media (i.e., uncovered money substitutes) has accelerated to 9.4 annualized in spite of the BoJ’s pumping.

The reason is a technical one: contrary to the Fed, the BoJ buys most of the securities it acquires in terms of its “QE” operations directly from banks – this creates new bank reserves at the BoJ, but no new deposit money. By contrast, the Fed buys only from primary dealers, which are legally non-banks (even though most of them belong to banks). This creates both bank reserves and deposit money concurrently. The BoJ’s actions can only directly inflate the money supply to the extent it buys securities from non-banks, e.g. when it buys stocks in REITs to prop up the Nikkei.

Below is a chart showing the annual growth rate of Japan’s narrow money supply M1, which is essentially equivalent to money TMS (it comprises demand deposits and currency).


3-Japan-M1-y-yJapan’s 12-month money supply growth has declined to 4.3%, in spite of the BoJ’s pumping  – click to enlarge.


In short, the effectiveness of the BoJ’s pumping depends on the extent to which commercial banks are prepared to employ additional bank reserves to pyramid new credit atop them and thereby create additional fiduciary media. Japan’s banks are doing the exact opposite, mainly because there simply isn’t sufficient demand for credit. Why would anyone borrow more money, given Japan’s demographic situation?

However, one result of this is that an ever larger portion of Japan’s money supply actually consists of covered money substitutes – deposit money that is “backed” by standard money. Covered money substitutes have grown by more than 77% over the past year.

Bank reserves can be transformed into currency when customers withdraw cash from their deposits, hence to the extent that deposit money is “backed” by bank reserves, it ceases to be a form of circulation credit. The narrow money supply in total now amounts to roughly 595 trillion yen; of this, roughly 139 trillion yen consist covered money substitutes and 83.4 trillion yen consist of currency (outstanding banknotes in circulation). Thus the stock of fiduciary media has shrunk to 372.6 trillion yen.


4-Japan-M1Japan: currency plus demand deposits = M1 = true money supply – click to enlarge.


And yet, in spite of Japan’s money supply growing much slower than money supply in both the US and the euro area, the yen continues to implode:


5-YenThe yen’s plunge is accelerating   – click to enlarge.


The yen’s ongoing collapse suggests that Kuroda will eventually get his inflation wish, as import prices continue to rise. In fact, Japan recently regularly reports trade deficits, which is inter alia a result of the plunge in the yen’s external value. Currently, this is offset to some extent by the decline in commodity prices, but given that commodities are by now extremely cheap relative to financial assets such as stocks and bonds, it becomes ever more likely that this offset will eventually reverse.

 6-japan-balance-of-tradeAn era of trade deficits has begun in Japan, concurrently with the decline in the yen   – click to enlarge.


The question is though, why is the yen falling so much if Japan’s money supply isn’t expanding at a very strong rate? We believe the answer to this question is to be found in the following statistics:

 7-Japan Debt To GDP Vs. The WorldGross government debt to GDP – Japan is the undisputed public debt king of the developed world – click to enlarge.


It is well known that Japan has a very high public-debt-to GDP ratio. Even with the recent economic upswing, its budget deficit for the current year is projected to clock in at more than 7% of GDP – the latest in a string of huge annual deficits. What is less well known is the ratio of public debt to tax revenues, which is actually the more relevant datum:


8-Debt to fiscal revenueGovernment debt relative to tax revenues   – click to enlarge.


We conclude from this that the markets are pouncing on the yen because they are forward-looking: the BoJ is monetizing ever more government debt and this is expected to continue, because the public debtberg has become too large to be funded by any other means.

In spite of the relatively low money supply growth this debt monetization has produced so far, it also creates the perverse situation that an ever greater portion of the government’s outstanding stock of debt consists actually of debt the government literally “owes to itself”.

On the surface, this monetarist wizardry suggests that one can indeed “get something for nothing” – but that just isn’t true. Deep down, market participants know that it isn’t true – so even though they are celebrating the promise of more liquidity by sending Japanese stocks soaring, they are also creating a fault line – and that fault line is the external value of the yen.

Among the industrialized welfare states, Japan is the one that is closest to government bankruptcy. Even with interest rates at record lows, the proportion of debt growth that is caused by mounting debt servicing costs alone has begun to rise in recent years due to the sheer size of the public debt outstanding. In other words, the government is by now in a so-called “debt trap”.

It has only been able to avoid more grave repercussions so far because Japan has run a current account surplus for a long time, and and only very few foreign investors therefore own JGBs. Japan’s own state-owned financial institutions such as the Post Bank and the state-owned pension fund have invested a large part of the population’s savings predominantly in JGBs.

And yet, the seeming calm rests on what appears to be increasingly misplaced confidence. All that is needed to blow the entire scheme to smithereens is an event that leads to a cracking of this confidence. Once a critical mass of economic actors becomes convinced that the plan is indeed to “make the public debt disappear” by monetization, and given what markets have done so far, it seems increasingly likely that it is the yen that will crack first. However, the sign that the ship is actually capsizing will be when JGB values begin to plummet in spite of the BoJ’s buying of government debt.

The growing amount of bank reserves piling up as a corollary to the BoJ’s exploding holdings of JGBs are like tinder waiting for a spark to set it off. Since Japan’s financial institutions hold large amounts of JGBs as ‘risk free’ assets augmenting their capital, their solvency will come into doubt should JGBs begin to decline in value. This is likely to happen should the fall in the yen’s external value get out of control. In that event, large portion of the covered money substitutes sitting in accounts may actually be converted into currency by panicked depositors. Then Mr. Kuroda will be reminded of the old saying “be careful what you wish for”.



Japan’s aging population needs rising prices like a hole in the head. The more “successful” Mr. Kuroda becomes in forcing prices up, the less money people will have to spend and invest. The economy will weaken, not strengthen, as a result. The advantages the export sector currently enjoys are paid for by the entire rest of the economy. moreover, even this advantage is fleeting. It only exists as long as domestic prices have not yet fully adjusted to the fall in the currency’s value.

If one could indeed debase oneself to prosperity, it would long ago have been demonstrated by someone. While money supply growth in Japan has remained tame so far, the “something for nothing” trick implied by the BoJ’s massive debt monetization scheme is destined to end in a catastrophe unless it is stopped in time. Once confidence actually falters, it will be too late.


JAPAN-TOKYO-BOJ-PRESS CONFERENCEHaruhiko Kuroda believes the economy is a machine, and he just needs to pull, the right levers.

(Photo credit : Stringer / Xinhua Press / Corbis)


Charts by: St. Louis Fed, StockCharts, BoJ, Tradingeconomics, Gail Fosler Group/IMF, Institute for New Economic Thinking



Posted on 27th October 2014 by Administrator in Economy |Politics |Social Issues

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Grandma Yellen, Federal Reserve Presidents, Wall Street bankers, CNBC talking heads and Ivy League economists are terribly worried about falling prices. Are you?

Via The New York Post

Meat, fruit, milk and butter prices skyrocket

New Yorkers are bringing home the bacon — but can’t afford the beef.

The prices of supermarket staples such as meat, milk and butter are skyrocketing.

US Labor Department data show the bill for butter surged 23.7 percent over the last 12 months. Meat rose 13 percent in the last year, with beef jumping 17.8 percent — the biggest boost since January 2004.

Meanwhile, fresh fruits other than apples, bananas and oranges increased 9.5 percent and whole milk rose 8.7 percent.

“Our paychecks stay the same, but the food prices keep going up,” fumed Jody O’Toole as she shopped at the Associated Supermarket at Eighth Avenue and 14th Street. “You still gotta feed your family, but meat and milk are too much.”

Colleen Vincent, who lives with her mother in Brooklyn, said she’s avoiding meat and sticking to canned goods and cabbage, which she turned into three meals last week.

“I don’t do big grocery shopping trips anymore,” said Vincent, 37. “I have to buy something that gives me more bang for my buck.

“We used to buy beef — now it’s a special treat,” she added. “There are other things I want out of life. I don’t want to spend everything on food.”

Steve Gould, 68, was picking up seltzer water, bananas and yogurt and said he refuses to buy anything unless it’s on sale.

“I want people to stick their heads out the windows like they did in the movie ‘Network,’ and say, ‘I’m mad as hell and not going it take it anymore,’ ” Gould said.

At Associated, a gallon of whole milk was going for $3.99, an eight-ounce package of Breakstone butter was $3.39 and ground beef was $4.19 a pound.

In Chelsea, the Gristedes on 26th Street and Eighth Avenue sold milk for $4.99 a gallon, eight ounces of Breakstone butter went for $3.49 and ground beef was $8.49 a pound.