How YOU Define Deflation in the Greater Depression
By Delwyn Lounsbury - THE DEFLATION GURU
In Webster's New World Dictionary YOU define deflation as: A lessening of the amount of money in circulation, resulting in a relatively sharp and sudden rise in its value and a fall in prices. When YOU define deflation YOU have to also define money as the socially accepted medium of exchange for value storage and payment. Credit then is access to money - often with the charge of a fee or interest on an I.O.U, bond, note, bill or loan which are all really debt. It's your debt ponzi pyramid scheme all over again. Mega rich central banking families (the financial power elite) print money with no backing for years and years leading to the biggest credit inflation of all time. Austrian economics says you now get the biggest credit deflation crash. Every time!
Robert Prechter can define deflation like no one else. Prechter's best seller book, "CONQUER THE CRASH" (2002) says.
"A deflationary crash is characterized in part by a persistent, sustained, deep general decline in peoples' desire and ability to lend and borrow. A depression is characterized in part by a persistent, sustained, deep, general decline in production. Since a decline in production reduces debtors' means to repay and service debt, a depression supports deflation. Since a decline in credit reduces new investment in economic activity, deflation supports depression. Because both credit and production support prices for investment assets, their prices fall in a deflationary depression. As asset prices fall, people lose wealth, which reduces their ability to offer credit, service debt and support production. The mix of forces is self-reinforcing."
Define deflation as a runaway extension of credit and world central bank fraudulent fiat money monopoly fiasco that has peaked to a point of busting like a big purple pussy pimple. Ludwig von Mises and Friedrich Hayek of the Austrian school of economics both warned of the severe consequences of large credit expansions. They said the cure to credit inflation is always violent credit deflation. See: www.mises.org
The safest government bonds pay hardly any interest right now but could drop tremendously in value if interest rates rise. 90 day T-bills the safest government sponsored debt instruments pay next to nothing. Look for most assets to lose 90 percent of value and unemployment rates to reach 30% into 2016 -2018 in the Greater Depression. Even the price of gold may drop in half.
There are two kinds of credit.
Self-liquidation credit is paid back out of production profits - a good thing. A valuable economic effect is the paying back of loans from business income. Non-self-liquidating credit is not related to production but to consumer items like houses, cars, boats, credit cards or stock margin borrowing for speculation. This kind of credit debt is a burden because no real production is there to pay the loan. It sucks vitality from the economy. This means there is less money saved to fund and foster business.
You can define deflation as a rolling default of all this heap of non-self-liquidating credit. This surely kills the good self-liquidating credit because deflation results in ever higher unemployment each year. This means less money in people’s pockets to spend on businesses goods and services. This means businesses have to lay off more people next year due to slow sales and so on.
This bust started in year 2000 with the dot com climax top and will not end until 20016 - 2018 or so. The bottom of the bubble will end with the Dow Jones stock average under 500.
We will define deflation as the retraction and reverse of the huge worldwide expansion. Because few creditors expect default at the top they lend to weak borrowers. The tree does not keep growing up into the stratosphere. The credit expansion is ending. Just look at the drop in real estate prices and the 9% unemployment rate (actually 18% when you figure in those that quit looking for a job or those that went back to school). People’s attitudes are getting downright ugly. This is the socionomic effect Robert Prechter writes about - a societal mood change to that of pessimism. Currently there is a waning of society’s collective mood which will lead to the Greater Depression So, define deflation as debt liquidation. Confidence wanes, production slows and credit contracts. Once started, it will go all the way to a final washout. One cannot stop a pendulum this big. It will swing way to far to the deflation side in the Greater Depression. No matter how much money modern governments try to throw at the problem. Define deflation as a social mood change from positive to negative (see socionomics article). Creditors, banks, debtors, and consumers get pessimistic slowly at first - then faster and faster. The smart money or contrarian thinking investors get out first and into short positions. Creditors get conservative and slow their lending.
Debtors start to pay off loans and start saving for a rainy day. Americans are saving 6.4% already here in the middle of 2010. This is up from an unbelievable negative savings rate just a few short years ago. Producers put plant and business expansion and hiring plans on hold. Consumers get more price conscious and spend less while saving more in a deflation economy. The velocity of money slows. This is a slower speed of circulation of money and a commensurate slowdown in buying causing more price reductions. This is actually the multiplier effect in economics. In the multiplier effect in reverse people out of work can't buy stuff. That means businesses have to cut back and layoff. The newly laid off plus the 9% already unemployed (20% if you count those that quit looking for a job and those that went back to school) mean more reductions in consumer spending. This thing can turn into a vicious cycle catching us all in a snowball rolling down the hill. Watch out for a big drop in stock prices next.
It starts to feed on itself! Already, we are seeing a big 10% downward slide in the total money supply (M-3). This is the total money supply of cash and cash equivalents that the government does not even publish anymore. Why did they do that? The government knew we could first see deflation as the drop in the total money supply? They are hiding this just as they hid inflation data from us by not including food and energy in the CPI, Consumer Price Index. In a slap to the government and a hurrah to the Amish, someone called this way of computing the inflation rate as - "Amish on a diet". Amish people would rather travel by horse and buggy and not use fossil fuels.
You can define deflation this time around as a Greater Depression. It will be three times larger and three times longer than the depression of the 1930's due to the huge increase in the size of government on the federal, state, county and city levels. Here in the middle of 2010 with trillions pumped into the economy by the federal government the only jobs created were a 10% increase in federal employment. The private sector can create a job for $100,000.
The President Obama recovery act creates a job for each $1,000,000 and in Los Angles it took $2,000.000 of stimulus money to create one job.
Obama's father was an anticolonial socialist from Kenya, Africa. Both senior and junior have anticolonialist beliefs like how the French, British and then America got rich by ripping off, occupying and invading the third world countries. The problem is Obama Jr. is carrying out his father’s dreams with wealth redistribution, socialism and increased taxation on a super cycle scale. You who voted for him might be in for a big dose of buyers remorse over the election of Barack Hussein Obama to president when you realize you helped elect someone willing to bring America down as punishment for a colonial and imperial past. Obama's self written autobiography is titled "DREAMS FROM MY FATHER." So, don't tell me otherwise. Note how he said "from" my father -not "of" my father.
The Federal Reserve Bank (a fraudulent monopoly cartel) is not accountable, subject to audit, federal or a reserve of anything. They are not even a bank. You can't walk in and open an account. The fed now helps the government create money out of thin air using computer entries. The U.S. government doesn't even need paper and ink anymore to make trillions of fiat money like the Quantitative Easing QE1 & QE2 the Fed now plans! QE2 consists of the Fed buying $600 billion of new U.S. government bonds and crediting the money to the federal government. It is just more monopoly money making out of nowhere by borrowing. Fiat means "let it be made" in French.
What is deflation? Define deflation as a deep dark dangerous depression this time around with a drop of 90% in most assets and even a 50% drop in gold along with 30% unemployment. This is a 100 year credit inflation mania climax and bust. It will be three times larger and longer than the 1930" depression. The GREATER DEPRESSION started in year 2000 with the dot com stock market climax and crash and may last until 2020 with 2016 being a low point according to Robert Prechter CEO of Elliott Wave International. He is author of New York Times non-fiction best seller list CONQUER THE CRASH, 2002. Let's let Robert Prechter define deflation.
"A deflationary crash is characterized in part by a persistent, sustained, deep general decline in peoples' desire and ability to lend and borrow. A depression is characterized in part by a persistent, sustained, deep, general decline in production. Since a decline in production reduces debtors' means to repay and service debt, a depression supports deflation. Since a decline in credit reduces new investment in economic activity, deflation supports depression. Because both credit and production support prices for investment assets, their prices fall in a deflationary depression. As asset prices fall, people lose wealth, which reduces their ability to offer credit, service debt and support production. The mix of forces is self-reinforcing." Robert Prechter's book, "CONQUER THE CRASH" (2002) How to define deflation.
Wow! Cash is KING in deflation and the Greater Depression.
Copyright 2011 - 2014 by Delwyn Lounsbury – THE DEFLATION GURU Use of this article allowed with attribution back to: http://www.deflationeconomy.com
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Deflation: First Step, Understand It
There is still time to prepare.
By Elliott Wave International "Fed's Bullard Raises Specter of Japanese-Style Deflation," read a July 29 Washington Post headline.
When the St. Louis Fed Chief speaks, people listen. Now that deflation -- something that EWI's president Robert Prechter has been warning about for several years -- is making mainstream news headlines, is it too late to prepare?
It's not too late.
There are still steps you can take if deflation is indeed in our future. The first step is to understand what it is. So we've put together a special, free, Club EWI resource, "Deflation Downloads." Robert Prechter’s most important warnings about deflation." Enjoy this quick excerpt courtesy Elliotwave.com.
When Does Deflation Occur? By Robert Prechter
To understand inflation and deflation, we have to understand the terms money and credit.
Money is a socially accepted medium of exchange, value storage and final payment; credit may be summarized as a right to access money. In today’s economy, most credit is lent, so people often use the terms "credit" and "debt" interchangeably, as money lent by one entity is simultaneously money borrowed by another.
Deflation requires a precondition: a major societal buildup in the extension of credit (and its flip side, the assumption of debt). Austrian economists Ludwig von Mises and Friedrich Hayek warned of the consequences of credit expansion, as have a handful of other economists, who today are mostly ignored. Bank credit and Elliott wave expert Hamilton Bolton, in a 1957 letter, summarized his observations this way:
In reading a history of major depressions in the U.S. from 1830 on, I was impressed with the following: (a) All were set off by a deflation of excess credit. This was the one factor in common. (b) Sometimes the excess-of-credit situation seemed to last years before the bubble broke. (c) Some outside event, such as a major failure, brought the thing to a head, but the signs were visible many months, and in some cases years, in advance. (d) None was ever quite like the last, so that the public was always fooled thereby. (e) Some panics occurred under great government surpluses of revenue (1837, for instance) and some under great government deficits.
Near the end of a major expansion, few creditors expect default, which is why they lend freely to weak borrowers. Few borrowers expect their fortunes to change, which is why they borrow freely. The psychological aspect of deflation and depression cannot be overstated. ...
Read the rest of this important 90-page Robert Prechter's report online now, free! Here's what else you'll learn:
What Makes Deflation Likely Today? How Big a Deflation? Why Falling Interest Rates in This Environment Will Be Bearish Myth: "Deflation Will Cause a Run on the Dollar, Which Will Make Prices Rise" Myth: "Debt Is Not as High as It Seems" Myth: "War Will Bail Out the Economy" Myth: "The Fed Will Stop Deflation"
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