Wednesday, January 19, 2011

More deflation? Antal Fekete at the Daily Bell

"But as my theory suggests…the presence of risk-free speculation renders the increase in the money supply counter-productive. It causes prices to fall rather than rise."

Dr. Fekete spent the entire article talking about bond prices rising, he concludes by saying prices are falling. Which prices? Bond prices? If he is referring to other prices, where is this so? The Fed, the banks, and the Treasury have been playing this game for decades, certainly since the death of Bretton Woods. Are commodity prices on average lower today than they were in 2000? 1990? 1980? 1970?

The depression is a poor example: start with no FDIC insurance as a big culprit for price deflation. In any case, a few years out of a hundred doesn’t tell the tale. The relevant period for comparison should be post-1971, when redeemability died. The Fed, the Treasury, and the banks have been playing the bond game the doctor describes since then, and prices have gone up over five-fold.

If the doctor is correct, cash is the asset everyone should hold. Cash and only cash. This would make investing life much easier, and also generates no taxable income. My purchasing power will improve without generating taxable income. Why do anything but hold cash?

This scam of bonds has gone on for decades. There has been no price deflation. No wonder the doctor is a lone voice in the wilderness.

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