Tuesday, March 26, 2013

Please, Stop With the Deflation Talk

Is it still possible that deflation is a risk?  According to A. Gary Shilling, there are seven varieties of deflation, and five of these have already taken hold.

Now, it was confusing enough for me when there were only two ways to discuss deflation (and inflation) – monetary, and price.  Of the two, monetary is the proper focus; price is easily manipulated and is not usually the first visible distortion.  Due to varying factors, prices may not noticeably be impacted even though monetary manipulations are rampant – yet distortions are manifest.

But I digress.  Now, apparently there are seven.  The five that have arrived, according to Shilling, are:

Commodity Deflation
Wage-Price Deflation
Financial-Asset Deflation
Tangible-Asset Deflation
Currency Deflation

The two that remain open are:

Standard Inflation/Deflation
Inflation by Fiat

His definitions are silly, for example:

Inflation by Fiat: I developed this concept in 1977 to encompass all the ways by which Congress, the president and regulators raise prices.  Increases in the minimum wage are a case in point. So, too, are higher tariffs on imports.

There is nothing on the list that cannot be better explained simply by the manipulation of money credit, and interest rates – with the booms and busts that follow.

But I don’t intend to go through this list of seven one by one.  This isn’t my point.  Instead, why is anyone talking about deflation – of any kind?

For every argument toward deflation, I can raise you $222 trillion in opposition.  This is the estimate by Laurence Kotlikoff of the present value of the unfunded liabilities of the US Federal government.  The number is increasing by $11 trillion per year recently.  Add to this the unfunded liabilities of the 50 states and in addition the unfunded liabilities of every country in the world.  Let’s say, for discussion purposes, this is a couple quadrillion dollars (hey, if you have a better number, I am open to it).

Every time price deflation (as measured by the various, understated government statistics) even peaks its head out from its burrow, central banks will buy some of this government debt.  “Oh no, Ben, I see some price deflation over there!”  “Don’t worry; I will pick up that $7 trillion US government deficit for the year. That should cover it.  Fire up the helicopter!”

Every hint of price deflation will be met with central bank purchases.  Do you really believe the Fed has a plan to shrink the balance sheet back to someone’s definition of “normal”?  The balance sheet will see ten trillion dollars before it sees one trillion.

This is why I envision the juggling act could go on for an extended period of time – all the while, more and more resources are commanded by the government / political sector, shrinking the pie for the productive and impacting the standard of living for all but the politically favored classes.

There will be no deflation – not if your definition is monetary, price, or even the seven types offered by Shilling.  The central banks have your back, and the governments of the world will keep their promises thanks to central bank purchases for as long as there is little to moderate price inflation.

Up, up, and away!


  1. inflation = inflated money supply

    deflation = deflated money supply

    with helicopter ben delivering $85 billion/month, some to his banker friends and some to the economy, there is inflation. where there is inflation, there is no deflation.

    price inflation or deflation is a reflection of monetary inflation or deflation and is a symptom, not a cause.

    up, up and away is the modus operandi of the central bank cartel. nothing has changed since 1913.

    1. Since the beginning of government insurance for bank deposits in the 1930s, there has been no deflation. Yet it is predicted still at every turn.

      My point is: as long as the CPI remains reasonably benign (even as high as 5% - 10% price inflation), the Fed will print. Therefore, if there is even a hint of deflation - of any type - the Fed will buy assets. The government will spend as much as the Fed agrees to buy.

      Additionally, the Fed is not limited to government bonds - today the Fed is basically the mortgage market, tomorrow the Fed could buy anything...every auction at eBay, for example.

      What would stop this?

  2. what would stop this?

    a financially and economically educated general public, which we will never have.

    what will stop this?

    a financially/economically bankrupt amerika, which we will ultimately get.

    1. We will ultimately get the bankruptcy, in many forms. I am coming to the view that it will take much longer than I previously thought.

      I also am coming to the view that the elite will accept a real, no-kidding, default on debt if this is what it takes to keep the system of regulatory democracy going.

      I do not suggest that they will succeed, but only that this is important.

    2. an elite pulling the strings of power can make a very bad situation last for a very long time. it is for this reason reaching bankruptcy will take much longer than you, and i, ever thought possible.

      in the end, the false paradigm that amerika has become will not last. it is a true "not if, but when" scenario. i await 'when' with open arms, no matter the difficulties accompanying it.

      as an aside: the cpi is put out by the liars who change the contents at will to allow them to continue business as usual. no meaningful information can be obtained and very harmful actions can be taken when employing the fable called the cpi.

  3. Study my Letter on Diana@Philosophyinaction.com.
    I wrote to Professor Kotlikoff some time ago. He's Insane.
    The $222 Trillion figure you cite isn't the present figure, at all- it's apparently LK's figure back in August, 2012.
    The politicians' Debts & Deficits are just that- THEIRS. There are no such things as "Government Debts", National Debts", "Countries' Debts", "States' Debts", Counties' Debts" "Cities' Debts","Taxpayers' Debts", etc.
    Debts, Deficits,etc., are RED INK, NOT Assets, Black Ink. With the amounts of Debts & Deficits the politicians have accrued, NOBODY IN THEIR RIGHT MIND would buy any of their so-called "securities" (Red Ink), which are virtually Worthless, not "Ultrasafe", at all.
    LK is apparently predicting a Major Economic Crash or Hyperinflation, neither of which I expect to happen.
    (To find my Letter, try searching for Crazy Inbox 6498.)

    1. The $222 trillion figure is Kotlikoff's estimate of the present value of unfunded liabilities; nothing more, nothing less.

      The politicians debts are government debts. You might have just disagreement in theory, but in practice these are government debt. Available for the Fed to monetize.

      Nobody in their right mind has to buy these securities; as long as there is moderate to low inflation (let alone deflation), the Fed will buy them. This is my point.

      I don't expect a major economic crash or hyperinflation either. Just a slow grind, until the elite believe that writing off the government debt is required in order to salvage the system of regulatory democracy.

  4. From LeRoy Matthews:


    As I pointed out in my note, the $222 Trillion figure you cite IS apparently Kotlikoff's figure as of August of 2012. His so-called "national debt" figure would presumably be about $233 Trillion now. "Governments" don't exist. Free people, Free societies, Free countries, like THIS one, don't HAVE such things. Screwballs like Barack Obama & his Gang of Crazy Crooks are no more the government, let alone the US, than YOU are. The idea that they can give away all the $ they want to, pay back the $ they've borrowed, etc. , using $ that they've STOLEN from the taxpayers, etc. , WHICH OF COURSE DOESN'T BELONG TO THEM, DOESN'T MAKE ANY DAMN SENSE!
    As I've been stating for some time, Blacks on average apparently score about 16 points LOWER on IQ tests than Whites. (See, for example "The Bell Curve... " by Herrnstein & Murray, "The Global Bell Curve", etc. , by Lynn, etc. ) They're stating that the IQ Difference has been confirmed & that Blacks ARE APPARENTLY GENETICALLY INFERIOR TO & SUBSTANTIALLY LESS INTELLIGENT THAN WHITES. Obviously, Blacks CANNOT be allowed to run for office or to vote (at least on a 1:1 basis) in White Elections. All of the Elections, Votes, Polls, etc. , therefore HAVE TO BE CONSIDERED FRAUDULENT, & THE RESULTS INVALID. Many Blacks, therefore- including WACKO Obama- HAVEN'T ACTUALLY BEEN ELECTED, APPOINTED, ETC. , INTO THE SO-CALLED "GOVERNMENT" .

    1. Characterizing individuals by a group - be it race, religion, whatever - is a step on the path to genocide.

      Deal with individuals as individuals. There is enough to be critical toward Obama about without resorting to racial generalities. Obama has more in common with George Bush than he does with the average American of any color.