And who said they ‘equal’ inflation, not deflation? Interest rates tend to go up in periods of deflation, which makes debt more expensive. The optimistic view is that we will be spared deflation as a result of the Federal Reserve’s very much bolder and swifter policy response to this economic crisis than was the case in 2008-2009. And then the peak today where debt is at 380% to GDP. ... Debt during the same period, nearly 20 years, grew at a compound annual rate of 7.9401%. Do you want up-to-the-minute technical analysis and forecasts for your favorite stocks, commodities, ETFs? [What economists today fear in a "deflationary death spiral" scenario is debt collapse and accompanying contraction of the money supply, not deflation itself — markjr] No correlation between deflation or recession or stagnation is evident under commodity money systems. In a world with record levels of debt , this could become a very serious problem. Economic Impact. Anyone who doubts this should be required to answer this question:Â Do you actually believe that millennials and gen-xers who are living with their parents till they’re 35, and who are $50,000 or more in hock for mostly worthless college degrees, will be able to foot the bills for baby boomers’ Social Security and Medicare? Everybody seems to have some theory about why hyperinflation is likely, but I haven’t heard a good one yet. But they are facing $18 trillion in debt and by anyone’s account, that isn’t good or even remotely sustainable. Consumers and businesses often decrease spending as a result. Debt crisis are usually deflationary, except in economies heavily reliant on foreign debt and investment: Getting this balance right is much more difficult in countries that have a large percentage of debt denominated in foreign currency and owned by foreign investors because the debt can’t be monetised or restructured so easily. Demand Collapse Trumps Supply Shocks. If there’s 3% deflation, the debt becomes worth 3% more each year in real terms. In a recession, demand decreases and companies produce less. NYC, London, California etc all in lock down. If the nascent Bolsheviks win, it will be cancelled, via my Proscription List scenario. The Iceland example During the Great Recession of 2007-08, the United States began to experience deflation, when the inflation rate fell below 0%, marking a measurable decline in the cost of goods and services. )Â For more-detailed predictions concerning the impending debt deflation and ways you can prepare for it, click here for a recent interview I did with Howe Street’s Jim Goddard, and here for an interview with Greg Hunter of USA Watchdog. Negative interest rates occur when borrowers are credited interest, rather than paying interest to lenders. Krugman wanted to place a trillion dollar coin in the Treasury, what’s the difference? Who said anything about slow defaults? Nevertheless, the Fed’s intentions are to slowly hike rates. A deflationary environment might reduce the value of Company B’s business to, say, $50 million. I thought of interest rate sensitivity when reading the latest report from the Federal Reserve Bank of New York, which shows that household debt in the U.S. surged last year at the fastest pace since just before the financial crisis of 2008-2009. – NO! And you can bet that the laws and new tax forms to implement those measures are already in PDF as I write this. I’ve been writing on deflation since the early 1990s, when I had the topic all to myself and was regarded as a voice on the lunatic fringe. It has been keeping upward pressure on rents and house prices since the Immigration Reform Act of 1965. This may lead to an overall decline in asset prices as producers are forced to liquidate inventories that people no longer want to buy. The reason that collapse happens quickly has to do with debt and derivatives. Bubbles are Inherently Deflationary It’s asset asset bubble deflation that is damaging, not routine price deflation. Debt Deflation: A situation in which the collateral used to secure a loan (or another form of debt) decreases in value. We have seen this movie before , isn't it. Join our Take Request Session on December 1st! All systems where go for a global economy on fire. WARNING: Deflationary Collapse Dead Ahead. The Covid-19 pandemic has led to an enormous slump in economic activity worldwide. Everyone knew once the Fed started on the road to QE there was no way back, that it could never be reduced or stopped as the asset bubbles it helped reflate would collapse, and that is what was shown last December, Mnuchin pressed the panic button and told them to reflate. Nevertheless, this can be just an illusion. When governments try to artificially boost debt and demand in a supply shock, the risk is the creation a massive deflationary spiral driven by debt saturation that is followed by stagflation when supply chains start to … ... One option is just to do nothing and let people default on their debt obligations and we have a 1930’s style great depression. The dollar force set to implode is a hundred times as large as the balance sheets of all of the central banks put together. Amazing. Our networked economy requires debt in order to extract fossil fuels from the ground and to create renewable energy sources, for several reasons: (a) ... 1,514 Responses to Deflationary Collapse Ahead? In August of 2008, oil was spiking to 145 a barrel. And here’s the kicker: If printing-press money were used instead of transfer payments, the hyperinflation that would instantly result would make checks mailed out to the Illinois pensioner worthless. Is it possible that all the Central Banks are scrambling to add gold reserves to avoid this massive deflation we both agree is inevitable? The Deflationary Implosion On The Road To Full-Blown Global Collapse. Thus, for a time, growing debt can offset the adverse impact of … During the Great Depression, money appeared to ‘disappear’ because in capitalist economies, banknotes are derivatives of credit and debt masquerading as money; and in a severe deflationary collapse, debts default, credit is withdrawn and what appears to be money vanishes. A fourth month of deflation will equal the longest stretch during the eurozone debt crisis and be just short of the record five-month run in 2009. If monetary policy efforts fail, however, due to greater-than-anticipated weakness in the economy or because target interest rates are already zero or close to zero, a deflationary spiral may occur even with an expansionary monetary policy in place. Why wouldn’t they do the same the next time??? State pensions will be paid no matter what damage is done to the remnants of the private sector. This is the 1929-style depression, where huge amounts of inflationary credit are wiped out through bank failures, bond defaults, and stock and real-estate crashes. However, debt becomes even more of a burden for businesses in a deflationary economy. Which just happened to both depress wages and add nitro-methane to home prices and rents, just as the first of the Boomers started entering the labor market and housing market. The economists Milton Friedman and Anna Jacobson Schwartz demonstrated in “A Monetary History of the United States” that a collapse in the quantity of money … Financial institutions begin to collapse, removing much-needed liquidity from the system and also reducing the supply of credit to those seeking new loans. &&&&&& The accumulating bad debts ripple through the economy up to the financial sector, which must then write them off as losses. Japan Inc. is a descriptor for that countryâs traditional, highly centralized economic system. The big thing that is happening is that the world financial system is likely to collapse. Low demand for a given supply equals low prices. Much bigger disasters loom, by the way, since the Social Security and Medicare/Medicaid systems also face certain bankruptcy. Deflationary Collapse Ahead? You can see two debt mountain peaks. (Note: Ten-thousand boomers are retiring each day. Politicians and central bankers of monetary sovereign nations simply don’t have an incentive to go down that Jenga-tower deflationary collapse route, especially since it was in part due to their policy in the first place that debt was able to get so high. Just like the Patriot Act magically appeared when needed! Just watch Dr. Zhivago. That's because when a dollar loses nearly all its value, then $100 or $1,000 or $100,000 isn't worth much either. Think about a scenario in which Company A has bought Company B for $100 million and funded the transaction by issuing $75 million in debt. Trump will prove to have been just a speed bump on the way to Dr Zhivago. Deflationary Depression. Some economists believe the United States may have experienced deflation as part of the financial crisis of 2007–10; compare the theory of debt deflation. TOMORROW: A HYPERINFLATIONARY TSUNAMI OR A RIPTIDE OF DEFLATION..OR BOTH. there might just as well have been! 1929 when world trade collapsed. For example, low interest rate policies used in Japan and the United States in the 1990s to 2000s, whichÂ sought to alleviate stock market shocks, showed that a frequent result is abnormally high asset prices and too much debt being held, which can lead to deflation and a deflationary spiral itself. COVID-19 Economic Collapse: Deflationary Hyperinflation. Following the stock market crash of 1929, American economist Irving Fisher published his book The Debt-Deflation Theory of Great Depressions, in which he devised a theory on why economic recessions occur and how a country’s debt burden can affect price levels. Many believe there’s no gold in Ft Knox but if all the CB’s are already in on this coordinated con, why not just take gold up to $1 million an ounce and keep the party going? During the Great Depression, money appeared to ‘disappear’ because in capitalist economies, banknotes are derivatives of credit and debt masquerading as money; and in a severe deflationary collapse, debts default, credit is withdrawn and what appears to be money vanishes. This would surely cause a lack of liquidity that in turn, could cause a deflationary collapse of the banking system. So is the demographic setup, so is debt in general, so are all of the bubbles mentioned above. The global economy has stopped and money is not being spent. Remember “Cash for Clunkers?”. You suggest that because the new money would lose value as fast or even faster than it is created, they will not try it. Understanding the nuances of deflationary economics offers two clear outcomes for an asset like Bitcoin. History' s Biggest Collapse. Deflationary Trends. The Bolsheviks are already warming up in DC. As if you are dealing with intelligent, rational, responsible people! One in 1929 where total debt peaked at 260% to GDP.
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