For Those Who Don’t Understand Inflation

Saturday, June 15, 2019
By Paul Martin

by Alasdair Macleod via GoldMoney.com,
ZeroHedge.com
Sat, 06/15/2019

This article is a wake-up call for those who do not understand the true purpose of monetary inflation, and do not realise they are the suckers being robbed by monetary policy. With the world facing a deepening recession, monetary inflation will accelerate again. It is time for everyone to recognise the consequences.

Introduction

All this year I have been warning in a series of Goldmoney Insight articles that the turn of the credit cycle and the rise of American protectionism was the same combination that led to the Wall Street crash in 1929-32 and the depression that both accompanied and followed it. Those who follow statistics are now seeing the depressing evidence that history is rhyming, though they have yet to connect the dots. Understandably, their own experience is more relevant to them than the empirical evidence in history books.

They would benefit hugely from a study of the destructive power of the Smoot-Hawley Tariff Act combining with the end of the 1920s credit expansion. The devastating synergy between the two is what crippled the American and global economy. And as we slide into a renewed economic torpor, contemporary experience tells us the Fed and all the other central banks will coordinate their efforts to restore economic growth, cutting interest rates while accelerating the expansion of money and credit. The current generation of investors argues that this policy has always worked in the past (at least in the past they have experienced) so the valuation-basis for financial assets and property should stabilise and improve.

This brief summary of current thinking in financial markets ignores the fact that a catastrophic tariff-cum-credit-cycle mixture is baking in the economic cake. Crashing government bond yields, reflecting a flight to relative safety, are only the start of it. If the 1929-32 comparison is valid, today we have the additional problems of excessive government debt coupled with consumer debt, and hundreds of trillions of over-the-counter derivatives adding to systemic risk. The banking system all but collapsed in the 1930s, as banks desperately dumped collateral assets into falling markets. This time, the debt is not confined to industry; a debt contraction will hit consumers directly and threaten domino defaults in OTC derivatives as well.

Obviously, this cannot be permitted to happen. Whatever it takes to prevent a debt-deflation spiral developing is de facto official policy. The only solution central bankers have is to flood the economy with a tsunami of interest-free money, which will be in addition to the monetary expansion which has continued since the Lehman crisis.

The Rest…HERE

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