Debt, Propaganda And Now Deflation…” Think of deflation as a biblical plague.”

Saturday, November 15, 2014
By Paul Martin

by Raul Ilargi Meijer
ZeroHedge.com
11/15/2014

Deflation is always bad. It either occurs when money/credit is so short that people can not get their hands on it no matter how hard and productive they work, and how much demand there is for their products, or it occurs when people are too poor, too much in debt or too reluctant to part with what they have.

In a deflation, people spend only what they absolutely must, provided even that they can afford to, which leads to large swaths of an economy being liquidated. Falling prices lead to falling wages lead to ever further falling prices lead to factory closings lead to more people who can’t afford to spend which leads to closings which leads to less spending which leads to faling prices etc. This continues until the debt has been deleveraged. Governments will lose tax revenue and raise taxes, but soon enough they will in quick succession disband and be replaced, rinse and repeat until even essential services can no longer be provided.

Until recently, a shrinking money/credit supply was very clearly not in the cards. Central banks have gone absolutely nuts in their stimulus plans, and this has artificially kept price levels up somewhat, though far less than they, and scores of ‘experts’ had hoped and expected. Now that game, too, is up. Japan went crazier than ever the other day out of fear that falling oil prices would sink consumer spending even more, but the US Fed has cut QE. That is an admission it has failed to do what it officially was supposed to, not the sign of triumph it’s made out to be, as in ‘the economy is doing so well, it doesn’t need our support anymore’.

Central banks have spent like maniacs, and consumer spending only keeps falling. Just ask Japan. And while you’re at it, ask them how entrenched deflation can become even in an economy that still has the benefit of growing world market to sell its products in. We won’t have any such benefit. The world has stopped growing, and there’s no massaging of numbers left strong enough to hide it. Not that it won’t be tried. As I said earlier this week, we now live in a world built on debt and propaganda.

The Rest…HERE

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