ANALYSIS: Inflation is NOT a good thing, and we sure as hell DON’T have deflation

ostears

You lickle liar

I was going to be ahead of the game this morning, but thanks to the pernicious incompetence of Microsoft, I can’t get into my pc today – you may have seen last night’s post about it. That this company gets away with the invasion of citizen rights – and farcically non-existent service – is down to compliant retailers, bent politicians and I’m Alright Jack f**k you from the very erudite pc users who should be on the barricades against Dial M for Merde. Read some of the comment threads, they’re priceless examples of why the corporate dictatorship is running away with the game.

So I’m now on the backup pc (alright for some, eh?) and my starter today is about deliberately confusing econo-fiscal headings and jargon. I’m talking primarily about this ludicrous term ‘deflation’.

The deflation/inflation thing is a sort of advanced form of walking across the ceiling, where you know really we should be walking over the floor, not falling down onto it head-first. From the ceiling. The Smiley people keep on telling us that wealth trickles down, and we have to take the hit on bank failures as creditors, so that we are protected as taxpayers. Now they want us to believe that inflation is a very good thing.

Inflation is a bad thing, period. It’s a bad thing if the currency is backed by gold, a very bad thing if its backed solely by a Government with sound public finances, and the destroyer of every known socio-political fabric if it’s backed by nothing except the empty promises of the financially incontinent. Guess which model the central banks have been using for the last forty or more years.

The unreal, bank-paper shuffling part of the economy is often described as “like a Cloud” in computing. It’s actually more like cloud-cuckoo incorporated: known values got lost somewhere over two decades ago, and as it is both laissez faire and globally linked in structure, the analogy it best represents is a virus of unknown power that is transmitted easily but without symptoms until it’s too late.

As a result of this alchemic equation with three unknowns, most of the ‘mature’ Nation States would rather play safe by doing everything in their power to protect the finance – upon which globalism feeds while defrauding everyone else – and the two big sources of that are the banks and the markets. So we have Zirp for the banks, bailins for the banks, QE for the stock markets, and manipulation as and when necessary in Libor rates, gold etf paper and so forth.

That last paragraph is an over-simplification, but going to a deeper level would require a book with a 50-page glossary of terms. Suffice to say that, even with all this jiggery pokery going on, there is an ever-present danger of entire financial sector going poof, bang and crash. So the thing to avoid at all costs (we are laughably advised) is deflation. And that’s why everything ‘they’ are doing at the moment is designed to produce inflation – preferably hyper-inflation – in order to wipe out all that unpredictable virus of debt….while telling us that the target is to avoid deflation.

Check out the difference in emphasis there, because it is at the very core of this con. The central banks and pocketed politicians keep on telling us that we have to avoid deflation because it is wicked and evil. It’s bollocks: a sound economy with everyone benefiting from stable or falling prices that keep one’s exports cheap and make imported raw materials cheaper to buy is in truth the inner smart suburbs of a city called Nirvana.

Deflation would be a good place to be were it genuine. The real double-cross in today’s altered Western reality is that most people are suffering from raging inflation.

Why inflation is not a statistic, it is a value assessment

Ultimately, you the citizen are living in an inflationary environment if your fiat currency income is falling, and the amount you need to spend to get the same value as ‘last time’ is rising.

Now consider the following realities in the UK – most of which apply universally in the US and Europe:

  1. Both the time period and value of unemployment benefits have been reduced.
  2. Real incomes have fallen – for nearly 4 in 5 of us – by 13% since 2003.
  3. Local taxes have gone up, but the level of service has gone down – forcing unexpected purchases of (for example) books, security equipment, childcare and pest control.
  4. For just over nine-tenths of all those in the bottom quartile of earnings, public transport service costs are rising while frequency and convenience are declining.
  5. While the price of durable goods has remained more or less static, durability has collapsed – forcing people to buy, for example, two washing machines every seven years as opposed to one.
  6. In some areas of Britain outside the South East, hours required and rates per hour for casual labour have fallen by 15% and 25% respectively.
  7. In areas such as hitech and telephony comms, a vicious combination of risible after-sales support, inferior quality circuit boards, malicious updates and unnecessary software ‘developments’ mean that not only prices but also obsolescence are on the increase.
  8. Those aged over 60 living at least partly on interest from savings have seen an average annual loss of net income since 2010 in the region of £6450. In that context, COL rises in the State pension are peanuts – and that’s without counting all those retired people (especially women) losing all their pension income for a period rarely less than three years.

This is the bottom line: deflation for the vast majority of Western citizens is a myth. Most of us are suffering galloping inflation in value for money.

One I did earlier: Stretching belief to breaking point

28 thoughts on “ANALYSIS: Inflation is NOT a good thing, and we sure as hell DON’T have deflation

  1. They just want to inflate the debt away, and to Hell with us. Still, nothing new there eh?
    The more I read and hear about the Windows issue is that I think that is it us that’s collecting all the data for the NSA, they don’t have to do anything other than wait for the data to come pouring in.

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  2. Inflation is simply State sanctioned theft of the citizens income and savings. Plus an attack on the citizens living standards.
    Less bang for your buck. because of stealth thievery by Govt.

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  3. My memory may be faulty, but I seem to remember some time ago that it was JW that mentioned something that I think he called ‘biflation’ – deflation or stagnation of prices for luxury consumer goods but rampant inflation for the necessities of life like food. This seems to be exactly what we are experiencing here. Consumer crap is getting cheaper and crapper as JW points out – even ‘premium brand’ white goods seem to break in no time and the cost of repair is prohibitive because of the unnecessary electronics that seem to always require a new motherboard. The food inflation is happening here mainly by stealth. Packages are becoming noticeably smaller but the price is either staying the same or inflating. This situation of course has the most effect on those whose income is so low that almost all of it is spent on necessities and as in the UK real incomes for this section of the population have been declining. I have found that most ‘middle class’ people I speak to are brainwashed into thinking that inflation is at the officially announced figure and are completely fooled by the biflation sleight of hand. They are completely comfortable borrowing heavily for major purchases however. Perhaps they are just trying to benefit from the same game the banks are playing – they think that inflation will benefit them as they will own real goods now and their debt will be inflated away. Such a strategy seems to have benefitted several of my colleagues over the past 10 years.

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  4. Excellent piece John,the amount of time it takes earn enough to buy something anything is rising & isn’t used in any analysis either, when it’s a much better guide than GDP,there’s not enough hours in a week for many to buy a house nowadays,Mars bars are getting smaller & smaller & that is Inflation,but this is causing deflation elsewhere as QE finds nowhere to go, nearly all asset bubbles are now saturated all bubbles face collapse Painting,housing,bonds,sport that have become the new tulip commodities the real commodities are undervalued (much of the QE assets savings is being poured into keeping it false) but the power of money will soon be looking for more & new homes to find,the value of everything as been false & humanity has always slumped to depravity when they have been false,it’s real economics at work,the difference between the true value of everything to society v the actually price is the damage it does to the economies.Any nation that can break free from false values will gain a march on all others!

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  5. My God, computers are cheap. Just keep an old one when you upgrade. I have my desktop with Win 7, my wife’s new $379 laptop with Win 8.1, her old laptop I bought used for $200 with Win XP, and my old laptop I payed $150 for. I put Linux on that one and it boots to the Internet in less than a minute. I use a router and good software firewall and anti virus. No problems with any of the computers. Many times computer problems are operator error.

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  6. Yup, I called it indeflation, and it is now what we’ve got….except the deflation we suffer is WORSE than the deflation at large…so the People’s deflation is inflation.

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  7. Dear Blogmeister, re: M$. Blogging anything remotely ‘techo’ results in a ton of advice. Oh! and BTW what you really need is…. ;-)

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  8. Ironic that the man that invented the Internet gave it to the world for free. Now these hedge pigs are trying to ring every last penny out of us to use it. I do blame myself because I’m not interested enough to learn how it works , I only know enough to get by and then curse when it stops.Knowledge is power.

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  9. As for inflation / deflation .We have to keep the value of Houses and other loans up where they are or the dear old banks are going to lose out again when borrowers throw in the towel, so that can’t be allowed to happen ,oh my word no.!.

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  10. and just to add to the stealth inflation techniques currently in full swing… yes the contents of food and household necessities are getting less but the packaging around them is getting larger and more of it. The contents themselves are often being watered down with more useless filler in them. Yes the financiers are always swindling most of us but its happening more and more across the board. Do you remember how bad inflation was in the ’70s ? and how the main policy of thatcher was to get rid of it. Well those same type of people are now bringing it on and hiding it from us with this manipulated ‘market’ (ha)

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  11. “QE for the stock markets,”

    QE is an asset swap. Where BoE reserves are swapped for Govt bond previously issued to drain reserves due to Govt deficit spending. So how exactly is it for the stock markets

    Part of the problem today is not a corrupt ruling elite. Its people barking up the wrong tree (caused in part by misinformation to encourage people to do just this). This is just one of a number examples in this post.

    “Inflation is a bad thing, period. It’s a bad thing if the currency is backed by gold, a very bad thing if its backed solely by a Government with sound public finances, and the destroyer of every known socio-political fabric if it’s backed by nothing except the empty promises of the financially incontinent”

    The old fear of inflation myth. The reasons you give to justify this comment are strange. Maybe because a real reason does not exist. The UK is no longer on the gold standard. And thank God for that.
    “A very bad this”. Why exactly. And what do you mean by “sound public finances”. Surely not a country destroying balanced budget.
    “backed by nothing”. And money (I assume that’s what you are referring) is always back by debt. As ALL FINANCIAL ASSETS ARE.

    I think you are on the little guys side. Otherwise I would not bother. But if you are facts not fiction and misinformation would help. The lies and confusion is how they ruling elite control us. More than anything else.

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  12. RJ And money (I assume that’s what you are referring) is always back by debt. As ALL FINANCIAL ASSETS ARE.
    You seem completely ignorant on 3 fronts i the manor of your riposte ii swapping govern bonds without balancing the economy only creates a savings bubble for those who purchase them! iii money created (creating debt) & not to restore real values creates inflation because what you do to one side of a equation you need to do to the other

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  13. @ The ghost. I’m unsure what point you are trying to make. Money is a financial asset. This rubbish about money having real values is just that. Money is not and never has been a physical asset. Gold as money once upon a time a long, long time ago is a myth. It’s a fairy story with no evidence to back it. We have been on the gold standard but that was just to try and restrict the amount of bank credit and trade between countries nothing more.

    And coins are a token for bank credit. To allow the exchange of money outside the banking system.

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  14. One of the reasons often overlooked for the fall in real incomes is the rising cost of pension. The scheme i’m in used to have a contribution rate of 1.5% of salary prior to 2008. It has now risen significantly to 10% of pay whilst the benefits have reduced considerably. Couple that with pay rises below inflation and some adverse tax/NI changes and i’m down about 10% disposable income since ’08.

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  15. The definitions of flation, in and de, are a terrible muddle. Consumer price inflation as we call it here is the absolute worst way to measure it. One because it’s the worst possible metric and two what is reported is at best disinformation.

    Deflation is the monster and it is here now. Most won’t believe it until stocks deflate. While everyone knows stocks only increase in value so never inflate they sure as hell know when they drop big time, like 08 it’s deflation. Heaven and earth will be moved to prevent that but someday they will deflate and then everyone will understand. However beating the rush to understanding deflation is here is the wisest move.

    http://www.theautomaticearth.com/2015/12/what-deflation-quacks-like/

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  16. RJ Money is a rate of exchange,therefore depending on the actual cost in money, effects future deals ie if you take anything to market & charge to little (devaluing the merchants purchasing power)you yourself needed to replace that loss in some way,the opposite happens if you charge to much(devaluing the purchasing power of the purchaser),normally the difference is small & such loses & gains make little difference,however if one side constantly gains & one loses the market suffers,So acting as a transfer of commodities in the market place does change the actual value of those commodities by the power of monetary existence(& were not including Interest),because has in monopoly the winners assets are only ever worth what the losers can affordhttp://www.debtdeflation.com/blogs/2012/06/15/submission-to-the-senate-economics-committee-post-gfc-banking-inquiry/

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  17. @ghost. You are referring to two different things here

    1 QE. This is an asset swap. Where reserves are swapped for bonds. So say a pension fund will sell bonds worth £1 billion and replace it with £1 billion bank credit. Now this extra money MIGHT flow into the share market. I think it does but other competent economists (most are ignorant fools) disagree. And BTW Steve Keene is only adequate. Not ignorant but not as good as he thinks and many think he is.
    2 Bank lending. This certainly without any doubt whatsoever causes an increase in not only bank credit (money) but also debt. The majority of brain dead incompetent economics do not understand this point (Steve Keen does).

    NB Govt debt increases. I think as long as the deficit spending NEWLY CREATED reserves and bank credit are both drained by bond issues then there is no issue re inflation and / or currency depreciation as long as it not continued beyond full employment. But others disagree. But its these issues economists should be debating based on a sound understanding re money and the treasury operations. This sound understanding is badly lacking.

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  18. “So where is the flaw in the argument? It turns out that thanks to these same identities it is pretty easy logically to work out the flaw, and in fact to extend this process of working it out to show – and maybe this is contrary to what MMT implies, or at least to what many people think MMT implies – that there most certainly are limits to fiscal deficits, and that the state’s ability to monetize its debt does not mean that it can borrow indefinitely without, eventually, destroying the economy and undermining the credibility that allows it to borrow in the first place”

    Michael’s article goes on for far too long

    “the credibility that allows it to borrow in the first place” ????? This is a confused comment. Is this deliberate misinformation? As the US Govt DOES NOT BORROW. Rather it issues bonds to drain reserves. A huge difference. And until this difference is understood an economist does not understand what’s going on re Govt spending and “borrowing” money. There really is no excuse now as Warren Mosler’s simple book explains all of this very clearly

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  19. RJ you keep claiming QE is just a asset swap,but it isn’t first the bonds are valued against a asset(guessing at best anyway) & already been lent against before but once the QE is created those assets Value actually are effected & change,the very process effects asset values has the money supply increases (Friedman) in theory & inflation results,this isn’t happening because the money supply is being kept down so deflation,so where’s the inflation coming from saving storage bubbles & having to meet the power & influence of money returns ie instead of investment in industry the increase in money supply is going into buying bonds (yes those same bonds your swapping!!!!!) housing & other bubbles (including commodity(which includes Labour) suppression)that trickles money into the real economy hence the breaking away from any chance of bridging value change other than by stopping QE & taxing money into the real economy to raise everything under valued,whilst forcing over valued assets to fall.
    Every bank was still over valued when they failed & in trying to get them to the value before the crash the economies of the world must collapse by the amount that the banks were overvalued before a recovery can begin!
    Which means little of the money created can be destroyed! & everything must become priceless in all it forms!

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  20. RJ but it’s not Government borrowing that got governments into this mess,it bailing out banks,if my company landed all it workers with it’s debts & then cut our wages to stay afloat ,what would happen both in reality & the the values of everything involved!

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  21. The Govt did the right thing by bailing out the banks. If they had not it would have been economic incompetence almost beyond belief. And unlike the lies told it did not cost the taxpayer anything

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  22. RJ your last two comments prove just how wrong you are,for every action their is a reaction,you seem to think that this is true for everyone & thing but economics & the banking bailout,what a shame governments didn’t force banks into the position creditors have forced Greece!

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  23. “the position creditors have forced Greece!”

    Once again you show clearly that you do not understand what is going on in the world regarding banking and treasury operations. Greece is no longer monetary sovereign. They have given away the most valuable asset the country owned. That is their monetary sovereignty. Due to appalling ignorance about these matters. Now they are no different to you and me. The markets now own them. They will extract all they can until their is nothing left and Greece is totally owned. Then Greeks will be no better than powerless debt slaves. That is what the Euro is all about. To take countries over one by one. Greece is just the first.

    So please educate yourself, Confusion / ignorance is our biggest threat nothing else.

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  24. Yet again you turn the argument & then still make a mess of it ,if Greece are debt slaves then so where the banks who ran most of them up!yet the treatment was totally different & disproportional to each’s position.

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  25. Are you hurriedly converting your financial resources into index linked entities?
    No – because deflation is with us,and will continue to be, until we feel the arrival of the next inflation.
    I sometimes wonder where you’re coming from , but not to worry, some of us can analyse life’s mysteries without being spoon fed the above BS.

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