I always refer to a dictionary to see exactly what a word means. Inflation is defined as an increase in the currency supply. Deflation, is defined as follows: “A decline in economic activity.” Is it possible to have both at the same time? I think so. Consider the current situation in several areas.
Housing: Realtors are going bust by the thousands, and there are tens of millions of homes for sale because of foreclosure, or being “under water.” “Under water” means the home is worth less than is owed on it. The Grand Junction Sentinel, (Colorado), last week wrote that one in five homes in that city were “under water.” A client of mine in Las Vegas, told me that on his short street, there are six homes in foreclosure. In my town, there are many foreclosures. Real estate sales persons are dying on the vine, quitting, or are frantic…take your choice. There is, in the real estate profession, “A decline in economic activity,” all around the world. This makes prices go down, not only in real estate, but in materials used to build houses, such as copper, lumber, steel, nails, roofing, plumbing fixtures, drywall, concrete, etc. This causes unemployment in the building, manufacturing, and sales of these things, plus declines in pries of the materials used in these professions, due to over-supply. “A decline in economic activity.”
Oil: When oil reached $140 a barrel, many people stopped driving, stopped buying big, gas guzzling cars, and oil backed up, with few sales or demand. Everyone drove far less. Auto sales stopped dead in their tracks. Now that oil is $100 per barrel less, has demand increased, and have car sales gone up? Not that I can notice. Oil went down $100 per barrel, because the demand was cut sharply, and the oil producers couldn’t quit producing overnight. Billions of barrels were on ships headed around the world, and they just couldn’t shut down capacity quickly. Auto sales have never recovered, and even with oil prices down, there is so much unemployment, that people simply cannot afford to drive, or buy new or even used cars. Car prices are at rock bottom, and maybe going lower, due to over-supply. Auto sales persons, dealerships, and factory workers are laid off by the tens of thousands, further crippling the economy. The oil producers were used to the $140 price, and their economies were geared to it. The result is that even in Saudi-Arabia and other oil producing nations, their economies are suffering. “A decline in economic activity,” is obvious in anything connected with oil, and cars.
Transportation: With far less consumption of consumer goods, rail, truck, and ship cargos are in a sharp decline. Truck drivers are laid off, thousands of trucks for sale, and railroad employees are relegated to the ’extra list.’ Fuel consumption of ships, trucks, and trains is greatly reduced, reducing demand, and keeping oil prices low. Unemployed transportation producers are not buying much either, so theirs is a “decline in economic activity.”
Retail: The worst Christmas in history probably, and even Walmart didn’t blossom. Hundreds of thousands (literally) of closed stores and chains of stores. restaurants, dealerships, franchises, outlets, and various sales places. Many malls are in foreclosure. Newspapers going bust due to lack of advertising, and of course this are more layoffs, unemployment, and lack of purchasing anything but the barest of necessities. A “decline in economic activity.”
Commodities: Copper and others are a third of what they were, due to no demand. Gold and silver are lower, also due to reduced demand. Why reduced demand? Because of a lack of funds with which to buy them, due to the “decline in economic activity” in the world’s economies. China has tens of thousands of closed factories, the Japanese economy is in the tank, as it England’s, and America’s. France and Germany aren’t prospering, and Russia’s in terrible shape. The Ruskies recently cut off one of their main sources of income, stupidly, by turning off the gas valve in pipelines running through the Ukraine. It is now back on, and I am certain the Russian economists and bureaucrats are glad of that. People who are not suffering economically, have and are, protecting themselves with precious metals, and especially at the current low prices in the world’s currencies. Notice that gold and silver, while suffering with the decline in commodities prices, have not declined nearly as much as others. The reason is that gold and silver are protection against economic failures. As dollars, euros, yen, and other currencies are printed with reckless abandon, the amount of gold and silver in existence is extremely limited.
Credit: Unless one has a credit score of over 700, it is virtually impossible to get a loan, so there is indeed a “decline in economic activity,” since little new money is being created by banks making loans. Consumers are also paying off debts at a rapid rate, thereby theoretically reducing the money supply. At the sale time, the D.C. Gang is printing far more than is being reduced by paying off debts, so the money supply is increasing. As it is placed in circulation, prices will go up. First in necessities, and then in everything else.
We now see a deflation taking place, with reduced prices in most products, due to a “decline in economic activity,” which is the dictionary definition of ’deflation’. How long will it last? What could fix it? The length is unknown, but what will not fix it, is printing trillions of dollars. This will not help, and cause inflation in many things, such as food and necessities, while the prices of non-necessities, such as homes, cars, and tourism, will falter, and either not go up, or go down. Food prices will go up, but perhaps not as fast as might be expected, due to lower fuel costs, and decreased demand, but they will go up. Gold and silver will go up also, as more and more realize the folly of the printing press solution, which, as I have written before, is only making matters worse. Governments throughout the world, when confronted with depressions, really have only one solution, and that is the printing press. There’s nothing else they can do, and their citizenry demands that they do something. When they do their only thing, it prolongs the recovery, and actually penalizes everyone with inflation.
Eventually, after homes, cars, tourism, and other non-necessities reach rock bottom, there will be hyper-inflation, due to all the trillions of dollars, pounds, yen, euros, and other currencies in circulation. This is as certain as the sun rising. A “trillion,” is twelve zeros! A “trillion” is literally so incomprehensible, that the mind cannot grasp at it, but two of them are what is being placed in circulation. No one seems to know or even care where it is going, what it will do, or what possible benefits there can be. The answer is there are benefits only to keep the big boys on Wall Street alive, and not a damned thing for Joe Six-pack, other than to make his cost of living go up. People often speak of crimes, and the big ones are often called the “crimes of the century.” This century is still young, but once again, the D.C. Gang paid absolutely no attention to the huge majority of Americans who were totally against any ’bailout’ of any kind. Millions of e-mails and letters against the bailouts, and no one paid the slightest bit of attention, including John McCain. As Hitler said in his book, it is so depressing, “to have to look at that constantly repeated betrayal,” by our so-called ’representatives’ in D.C. They do not represent their constituency at all.
As an aside, Blacks vandalized cars and stores in New York, when the Giants lost the playoff game to Philadelphia. When a cop shot an innocent in San Francisco, blacks rioted, burned and pillaged. Blacks riot and vandalize at the drop of a hat, when a team wins or looses, as they did in Philadelphia twice recently, or for any other reason, for that matter. When Martin Luther King was shot, American blacks rioted, burned and pillaged in all major cities. It has happened hundreds of times in the last few decades. I wonder what will happen in D.C. at the Obama inauguration, with close to a million out of town blacks in attendance? Not counting the hundreds of thousands of black residents in D.C. Time will tell, but I hope things remain calm.