Inflation: Dead or Alive?

Miles Franklin sponsored this article by Gary Christenson. The opinions are his.

Breaking news: Silver briefly reached $18.00 and closed at $17.85. The DOW rose again to 28,645.

Inflation, Deflation, Stagflation, and Hyperinflation? So What?

Inflation: The banking cartel demands inflation of the currency supply. The cartel encourages massive debt and collects the interest and fees. They want inflation because it increases debt and repayment is easier. With global debt at $250 trillion, the cartel is successful.

Governments account for a large percentage of global debt. They spend more, buy votes, feed currency units to cronies, and borrow to cover the revenue shortfall. Inflation makes the debt load easier to tolerate.

Corporations want mild inflation to boost revenues, profits and stock prices.

Deflation is scary. Bankruptcies increase, debts aren’t paid, loans go bad and the banking cartel is stuck with huge write-offs. Individuals and corporations can’t service their debt and face insolvency and bankruptcy.

Stagflation, such as the United States in the 1970s, is dangerous for individuals, corporations, stock markets, and governments. Consumer prices rise, profits shrink, and individuals suffer as their expenses increase faster than incomes. Unemployment expands, government “does something” and deficits jump higher.

Hyperinflation creates a disaster for almost everyone, including governments, corporations, individuals, and nations. The currency—dollars, euros, whatever—buys almost nothing. The supply of goods dries up, profits plummet, prices increase every day, people riot, and governments fail.

SUMMARY:
  • Inflation is destructive and deflation, stagflation and hyperinflation are worse.
  • Too many currency units (borrowed and “printed”) injected into the economic system cause inflation, which has been standard procedure since 1913. Commercial bankers and central bankers encourage debt creation. They enable excessive spending by governments. This “gravy train” supports many politicians, Wall Street, lobbyists, corporations, bankers, and the political and financial elite. Don’t expect change.
  • A modified gold standard would end most consumer inflation, but the world is not ready to return to monetary sanity. Many people and governments will resist the discipline of gold. They’ll claim that ever-increasing debt, deficit spending, socialism, Keynesian economics and debt-based currencies are great. I encourage them to explain that nonsense to the residents of Venezuela, Argentina and Zimbabwe.
  • The bottom line is simple. The political and financial elite need inflation of several percent each year. However, they want to avoid hyperinflation, deflation and stagflation.
WHY? EXAMPLES:

Examine the DOW since 1971 on a log-scale graph. It rises exponentially because dollars buy less every year. Inflation and QE levitate the DOW. The rich get richer.

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The NASDAQ, S&P and Transports show similar exponential increases. Stock prices rise as debt rockets higher and the banking cartel devalues dollars. QE4ever levitates the stock market. From Sven Henrich:

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Examine US Total Credit Market Debt on a log scale. Dollars buy less and total debt increases.

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Examine the purchasing power of the dollar measured in gold. The log scale graph shows continual devaluation of the dollar. The dollar will weaken in the coming decade.

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Is gold expensive compared to the DOW? Both rise as dollars buy less. The ratio of 10 times gold price divided by the DOW shows that gold is inexpensive compared to 30 years of history. Expect a rising gold price.

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Compare the price of the NASDAQ to silver. The ratio shows that silver is inexpensive compared to the “high-flying” NASDAQ.

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INFLATION IS NOT DEAD. How can inflation die when bankers, governments, individuals and corporations created over $250 trillion in debt? They need weaker currency units to service the debt and inflate bubbles. The debt bubble will eventually collapse, but “can kicking” is a national pastime in governments. Inflate or die!

Bloomberg published the following cover in April 2019. Magazine covers are often contrary indicators that appear when a major change is about to occur.

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Inflation will accelerate as currency units are devalued more rapidly.

Another example of consumer price inflation is health care. Everyone knows prices are rising for insurance, hospital costs, prescription drugs, and nursing care.

Everyone knows prices for televisions and computers are falling. We buy televisions and computers every 5—10 years. But we pay for health insurance every month.

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Mike Shedlock (“Mish”) on inflation:

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THE PROBLEM IS DEBT.

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Do not expect this national debt extravaganza to go quietly into the night. The central bank solution to the excessive debt nightmare is to create more debt. But don’t call it QE (per Chairman Powell) because, although it looks and acts like QE, he claims it is “not QE.”

CONCLUSIONS:

  • The political and financial elite want increasing debt, more currency in circulation and price inflation. The last 100 years show that dollar devaluation, debt creation, rising stock prices and consumer price inflation are standard procedure.
  • The political and financial elite hate deflation. Markets crash, unemployment rises, and bankruptcies sweep the country. Nobody wants a repeat of the 1930s. Central bankers will do “whatever it takes” to avoid deflation. Expect QE4ever.
  • Global debt exceeds $250 trillion. Total US credit market debt is $75 trillion. Debt requires interest payments, but it defaults when it grows too large, or it’s repaid with hyperinflated currency units.
  • Excessive debt requires zero or negative interest rates to afford the interest costs. Negative rates make no sense. Don’t expect such nonsense to persist for long.
  • Problem: Too much debt creates deflation when it defaults. High interest rates hasten defaults because the interest can’t be paid, but low interest rates enable more debt, which will eventually default. Oops!
  • The financial system is vulnerable to market crashes, debt defaults, and bankruptcies. Think excessive corporate debt, Lehman moments, Deutsche Bank, and 101 over-leveraged zombies surviving because debt is cheap.
  • Gold and silver are inexpensive compared to the DOW and NASDAQ. That relationship will reverse in the coming decade.

Miles Franklin will convert unbacked debt-based fiat currencies into real money—gold and silver. Call them at 1-800-822-8080.

Gary Christenson

The Deviant Investor