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Forum Post: Deflation Isn't the Enemy

Posted 1 year ago on Nov. 27, 2012, 3:11 p.m. EST by richardkentgates (3269) from Fort Walton Beach, FL
This content is user submitted and not an official statement

Michael Pento


We now live in a world where deflation has become public enemy number one. In this current economic environment, governments seek a condition of perpetual inflation in order to maintain the illusion of prosperity in the developed world. But in reality, deflation is the free-market approach to rectify a secular period of superfluous money supply growth, debt accumulation and asset price appreciation.

In an effort to boost the earnings of private banks and to facilitate sovereign government's largesse, central banks have a well-documented history of rapidly expanding the supply of fiat currencies and manipulating interest rates lower. This creates increasing debt levels and rising asset prices.

As recently as July 2008, the U.S. Fed (with the help of commercial banks) had produced YOY Consumer Price Inflation of 5.5 percent and Producer Price Inflation of 9.8 percent. In the Eurozone, the ECB produced consumer inflation over 4 percent and The PBOC (People's Bank of China) boosted inflation north of 8 percent for Chinese consumers.

Once central bankers are finally forced to confront the inflation they created, they throttle back on the printing press. But the return trip to a more normalized economy brings with it the bursting of debt and asset bubbles.

After the credit crisis set in and the healing aspects of deflation began to take hold, central banks rapidly expanded the supply of base money in an effort to quickly erode the purchasing power of their currencies and bring real estate prices higher. For example, real estate prices in Spain are already down over 30 percent and are expected to drop a further 12 to 14 percent in 2012. The ECB has printed over one trillion Euros to date; in an effort to weaken their currency, elevate home prices and bring solvency back to the European banks.

The problem with the addiction to money printing is that once a central bank starts, it can't stop without dire, albeit in the long-term healthy, economic consequences. And the longer an economy stays addicted to inflation, the harder the eventual debt deflation will become. As a result, central banks are now walking the economy on a very thin tightrope between inflation and deflation.

Once they finally step away from expanding the money supply, deflation rapidly takes hold. However, it then takes an ever-increasing amount of new money creation, on the part of the central bank, to pull the economy away from falling asset prices.

Another example of the roller coaster ride provided by central banks can be found in the price of oil. Oil prices had been historically around the $25 per barrel range throughout the decades of the '80s and '90s. Then, beginning in the early part of the last decade, oil prices started to soar and eventually shot up to $147 by the summer of 2008.

In the midst of the deflationary credit crisis, it fell to $33 per barrel by the start of 2009. Of course, the Fed had already embarked on their quest to eventually print $2 trillion to fight deflation, which helped send oil back to $114 per barrel by 2011.

However, because the Fed and ECB have both proclaimed that they are on hold from debt monetization and currency debasement, the same monetary environment that led to the pronounced deflation that occurred during fall of 2008 has arrived once again.

Now, some will say that a severe recession accompanied by sharp deflation can't occur because banks are currently well capitalized. It is true that the deflationary recession was caused by banks that had previously loaned themselves and the economy into insolvency. However, today the problem is much worse. We now have entire nations which have become insolvent. It would be very difficult to argue that having a banking crisis is better than enduring a sovereign debt crisis, especially since much of the assets banks hold is sovereign debt.

Therefore, we see that oil prices have already fallen 18 percent, from $110 a barrel in February of this year to $91 today. Copper prices have dropped 11 percent, from 3.90 per pound in April to $3.50 per pound today. And equity prices have started to decline, just as they did at the beginning of the Great Credit Crisis.

Japan's Nikkei Index has declined nearly 11 percent in the last month, while the S&P 500 has lost 7 percent since the beginning of May. The Spanish IBEX has tumbled 7.6 percent in the last 30 days and is now down 37 percent during the past year!

These price adjustments are absolutely essential for the long-term health of the global economy, but I doubt the central banks will sit idle much longer.

The plain truth is that the current debt levels, carried by the developed world, demand a period of massive deleveraging to occur. A healthy and cathartic period of deflation is needed; where asset prices fall, money supply shrinks and debt levels are reduced to a level that can be supported by the free market. This is the only viable answer for various nations struggling with solvency.

However, the return journey from rampant inflation and asset bubbles always carries insolvency and defaults along for the ride. Defaulting on debt is deflationary in nature and restructuring your liabilities is the only choice when you owe more money than you can pay back.

The prevalent idea among heads of state and central banks is that a country can borrow and print more money in order to eliminate the problems caused by too much debt and inflation. But more inflation can never be the cure for rising prices and piling on more debt can't solve a condition of insolvency.

Global investors are now being violently whipsawed by the decisions of central banks, as they switch between inflationary and deflationary policies. The choice governments now face is to allow a deflationary depression to finally purge the worldwide economy of its imbalances; or try to levitate real estate, equity and bond prices by printing massive quantities of their currencies. It is vitally important for your financial well-being to be able to determine which path central banks are currently pursuing. For the moment, they have allowed the market forces of deflation to take hold. However, past history clearly signals to investors that it is only a matter of time before economic conditions deteriorate to the point where governments return to their inexorable pursuit of inflation. The point here is to understand where we are in the cycle between inflation and deflation and then to invest accordingly.

Michael Pento is the President of Pento Portfolio Strategies.


According to some other article I'll post later, QE may exhaust itself before enough of the new currency makes it into circulation, which would cause more serious damage. This exhaustive scenario could leading us into a deflationary period. This is good because housing, food, energy, clothing, everything becomes more affordable to the working class without one red cent in wage increases. There is already a lot of fear mongering building up in the back allies of mainstream media, telling the public that deflation is the enemy but this is again where the 1% is trying to supplant your interest with their own. Deflation will force the 1% to take the financial hit that they have been forcing the public to eat for them over the lat 5 years.

48 Comments

48 Comments


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[-] 2 points by VQkag2 (16478) 1 year ago

Michael Pento is just a right wing extremist whose only solution is to cut programs that benefit the 99% in effort to address the false fear mongering of the "fiscal cliff", and "deficit/debt" partisan talking points.

He should be disregarded outright as a partisan corp 1% oligarch shill.

[-] -2 points by TheRazor (-329) 1 year ago

Your arent too intelligent, are you, VQk? The unfunded liability of the federal government is $87 trillion dolloars. The net worth, the entire value of the USA is $63 trillion. That doesnt include the state's unfunded liability.

So if we took every red cent of every person in America, took all of Warren Buffets fortune and Bill Gates, and Larry Ellison's, plus the scraps and rags of the local street person, we still dont have enough money to meet our debt.

And a fool like you thinks taxes will work. Too funny.

[-] 1 points by hork (40) 1 year ago

"And a fool like you thinks taxes will work. Too funny." --What's this guy trolling, trying to inflict a little hurt on his opponents.. lame.

[-] -3 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

How could anyone think you are anything but a paid in-full-traitor to this forum when you intentionally spread misinformation, like your constant attempts at linking the Fed printing money to government spending on programs. The money the Fed is printing under QE goes str8 to the banks. You attempt to confuse this issue over and over after being shown it's not true so you are in fact intentionally spreading misinformation. You are far more than just an idiot, you're paid to be here.

[-] 1 points by TechJunkie (3029) from Miami Beach, FL 1 year ago

I really would like to hear more about the thought processes that went into concluding that he's being paid to disrupt this forum.

[-] -2 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

Because spending your time continuing to restate something in opposition that you have been shown time and again to be false, without getting paid, is less likely.

[-] 1 points by TechJunkie (3029) from Miami Beach, FL 1 year ago

Okay, so on the grounds that he just won't stop disagreeing with you, you're declaring him to be a paid operative, intent on subverting this forum?

[-] -2 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

That would be like me calling you a one man front when in fact you declare yourself to be the head of a very profitable development company. But then my statement again would be close to the truth. Go play in the street if you're going to be a dick.

[-] 2 points by TechJunkie (3029) from Miami Beach, FL 1 year ago

That analogy doesn't seem to make sense. I'm interested in the fundamental assumptions that you have to accept before you can conclude that somebody who you're interacting with on the Internet is a paid operative. For it to make any sense requires an exaggerated sense of self-importance, for one thing. But the idea also depends on a paranoid world view that includes covert agents lurking in the shadows who are intent on messing with Occupy to prevent them from accomplishing their ... objectives -- oh wait that's right Occupy has no objectives. Why bother subverting a group that can't even figure out what it wants to do?

[-] -1 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

I gave you the answer. Fishing for a different one or acting as if the first answer wasn't an answer doesn't nullify the answer, it just means you want to play games.

[-] 1 points by TechJunkie (3029) from Miami Beach, FL 1 year ago

Oh no, not fishing for a different answer. Just fascinated by the accusation.

[-] 0 points by hork (40) 1 year ago

Love you points! Can you instead start a new post and talk on the subject. I'd be interested in reading it and commenting!

Keep up the good work!

[-] 1 points by hork (40) 1 year ago

Yeah, I think there may in fact be nothing wrong with printing money under the circumstances in America, and I''m not sure the inflation is so bad it merits cutting money creation in order to satisfy curbing it. There is tons of money in the economy, just most of it goes into the financial sectors of the economy where productive tangible stuff doesn't necessarily go on. The government should print money with the express interest of getting that cash into infrastructural projects that would boost the value of the dollar based on large scale actually productive endeavors. If the value of the dollar increases then inversely this means that inflation goes down.

I posted another forum post on why there needs to be sub-categories like reddit or whatever on this Occupy site, so that we can get people interested in discussing the same subject, the economic details of macroeconomics, all on the same page, even if metaphorically speaking we are not all on the same page with each other in how we feel about what has to be done about the economy.

This platform sounds slightly austerity driven logic to be sure, so you wonder how an idea not to different from Obama or Romney's makes it onto the Occupy site.

There are other mechanisms in monetary policy to adjust conditions for a more utilized economy, and I'm wondering if having deflation drive the agenda would achieve those goals. I'm not really sure I see how deflation would hit the 1% hardest, and that accordingly the rest of the public would be hunky dory, sounds too good to be true.

QE is odd because it is a lot of bank subsidization, which defeats the purpose of increasing the value of the dollar by pegging it to productive sectors in the economy showing strength. I don't see financial sectors necessarily playing this role, so I can't imagine this being sound policy for that reason. What I do think would increase the actual value of the dollar would be a huge surge in infrastructural improvements in America, like high-speed rail projects, environmental initiatives like green energy, rebuilding roads, stuff that would tangibly contain a lot of value in and of themselves. The government needs to get money to workers to build this stuff and then they take that income home from these contracted out projects and go and spend it in the economy, bringing in more business everywhere and making even more people live more comfortably.

Deflation seems to set forth the opposite kind of spiral, almost seeming pro-cyclical, that it reinforces the direction of the markets, if doing good, it can make things even better, but when worse, does not really do a hell of a lot. If the government were to invest in huge infrastructural improvements like I recommended, then this would be counter-cyclical, in that while the economy is doing bad, the government would try to spur new activity to offset that, which is especially reasonable since American factories and a lot else are way under utilized from previous benchmarks. Its possible.

[-] 0 points by hchc (3297) from Tampa, FL 1 year ago

It just cost me $17 for a pound of roast beef and a pound of swiss cheese.

How much of the fed injections into wall st go directly into commodities, thus raising the price of the corn, then raising the price of everything else

[-] 1 points by TrevorMnemonic (5827) 1 year ago

Inflation is a bitch at the grocery store. Everything is up.

I know several people being drained by gas prices and the drive to work because they can't afford to live near their job.

[-] 1 points by hork (40) 1 year ago

The money in your pocket is the issue. If you have more, inflation doesnt matter, and then inflation goes down secondarily. It shouldnt be the prime mover in Fiscal and Monetary policy.

[-] 0 points by GNAT (150) 1 year ago

So what you're saying is that money is being printed in order to keep prices up. If the Fed stops printing and allows deflation to set in, that products essential to living become more affordable, providing relief for the working class, increasing demand, and creating job. And that the only downside is that this also means less profits for the 1% and WallSt?

[-] 3 points by TechJunkie (3029) from Miami Beach, FL 1 year ago

http://en.wikipedia.org/wiki/Deflation#Deflationary_spiral

Richard, isn't GNAT your sock puppet? You're having a conversation with yourself here?

[-] 0 points by VQkag2 (16478) 1 year ago

I think clamor is also Rich. Kinda sad really.

[-] -2 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

Can't accept that nobody likes you three, accept you three? Bite me.

[-] 1 points by VQkag2 (16478) 1 year ago

"you three"? what three?

[-] -1 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

Yeah, you three. I don't count your socks and fake trolls. Just you three. What do you think I'm looking at when you get sucked into visiting one of my sites? I have been examining stats, dumb ass.

[-] 2 points by VQkag2 (16478) 1 year ago

Ok. I went to your site but I still don't know what you mean by "you three"

????

[-] -1 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

Fortunately for you, I don't sink to the level of some on here. I won't be posting that info.

[-] 1 points by VQkag2 (16478) 1 year ago

What info?

[-] 2 points by TechJunkie (3029) from Miami Beach, FL 1 year ago

Wow that went right off the rails. I thought that we were talking about deflation?

[-] 1 points by VQkag2 (16478) 1 year ago

He claims to have some personal info on me & I was questioning him on it.

Issat ok?

Do you know what he means by "you three" or what personal info he has about me?

[-] 1 points by TechJunkie (3029) from Miami Beach, FL 1 year ago

I had a hunch when you asked me "Do you support OWS?" just now, and I confirmed it using Google. My hunch was: that's one of your favorite phrases. You, in particular.

https://www.google.com/search?client=safari&rls=en&q=site:occupywallst.org+%22Do+you+support+OWS%22&ie=UTF-8&oe=UTF-8

I wonder, what's the point of that question? You seem like some kind of tribal defender, paranoid about infiltration from other tribes. It's part of the entertaining dysfunction that I was talking about.

You: Are you with us?

Me: Well, who is "us", exactly?

You: ANSWER THE QUESTION!! Are you with us or against us?

Me: Well, what are you trying to accomplish?

You: ANSWER THE QUESTION!! Are you with us or against us?!?

[-] 1 points by VQkag2 (16478) 1 year ago

Nothing wrong with asking how someone feels about this important progressive movement.

I'm proud to defend OWS! I am not paranoid about it. That's you resorting to a weak personal attack.

And you still haven't answered the question. In answer to YOUR alleged questions:

  • "us" is the 99% who seek progressive change that benefits the 99%. IMHO.

  • We (OWS) is trying to accomplish progressive change that benefits the 99%. IMHO.

So YOU have some problem answering simple questions. Why?.

Are you with OWS in the effort to implement progressive change that benefits the 99%.?

[-] 1 points by TechJunkie (3029) from Miami Beach, FL 1 year ago

I've already had this conversation with you over and over and over. You don't remember? I criticized the idea of supporting an "organization" that rejects goals, since how do you know what you're supporting? And I criticized you for using "progressive" as a code word for "liberal", which marginalizes half of the 99% in a group that supposedly represents the entire 99%.

So you're still here fighting the good fight, demanding loyalty pledges from people and getting into flame wars with conservatives. And not accomplishing anything in particular, which is not a problem if you don't have any goals in particular. That's exactly what I expected to find when I came back here and I haven't been disappointed.

[-] 1 points by VQkag2 (16478) 1 year ago

I have no recollection of our interactions. Not that important. Sorry.

I disagree with your contention that this organization "rejects goals". You clearly do not understand what we are doing. (We= OWS, 99%)

You are free to criticize the words I use but it is meaningless to me. I use it because it covers the policy "goals" that we (OWS) support. I do not use it to marginalize half the 99% (repubs?) because I know the progressive policy "goals" we fight to implement will benefit ALL people, regardless of party affiliation. (it ain't about party)

I demand no loyalty. I ask whether you support OWS so that I know who I am dealing with. Frankly I don't see a good reason to hide your position. I never tell anyone they aren't welcome here, whatever their position.

Challenging anti OWS conservatives is a major reason I come here (as well as pushing the progressive solutions that will benefit the 99%, and encourageing protests, petitions, etc). So the "flame wars" are the outcome and the only accomplishment from that is to assure them that there are people here who do not support the same old anti 99% conservative policies that benefit the 1%.

I hope that clarifies things for you. You were obviously confused, & mistaken about me.

I would also add, you should disregard me personally, and focus your energies on the issues that matter to you. I hope you do not come here to criticize my style. That would be silly.

Good luck to you in all your good efforts.

[-] 1 points by TechJunkie (3029) from Miami Beach, FL 1 year ago

No, but he seems to be accusing you of being part of a sock-puppet conspiracy.

This forum is so sad. I came back here to see what had changed around here now that the distraction of re-electing Obama is done. My impression is that this forum is even more dysfunctional now than it was before.

[-] 1 points by VQkag2 (16478) 1 year ago

Maybe. I use one login name to comment. I strive to address important issues that affect the 99%. I've worked hard to be civil and persuade others to do the same.

I am a progressive and as such I make an extra effort to challenge the conservative ideology that I see as the root of all our problems.

We MUST allow all opinions, and that means a measure of dysfunction. Unfortunately that is the result. I suppose if enough like minded people got together we could improve the functionality but that has not happened.

Do you have a suggestion?

[-] 0 points by TechJunkie (3029) from Miami Beach, FL 1 year ago

No suggestion, it's hopeless. Occupy was doomed from the beginning because of its refusal to organize or focus on objectives. This forum is a caricature of that fundamental dysfunction. It's fun stimulation every once in a while due to that dysfunction, and I wouldn't want that to change.

[-] 0 points by VQkag2 (16478) 1 year ago

I disagree. OWS has been a resounding, unquestionable success.

I agree that the organizational model, & scattered focus is a weakness, but despite that weakness we have succeeded on many fronts.

Do you support OWS and the agenda we are fighting for?

[-] 0 points by clamor (-40) from Hopatcong, NJ 1 year ago

If the fed stops printing, the downside is the free cell phone for shaniqa gets cut off, the EBT and SNAP card stops getting recharged, state after state stops getting reimbursed for medicaid expenses, and the subsidy to AFDC, HHS, and section 8 housing gets cutoff.

Number of workers for every person on disability in 1960: 134

Number of workers for every person on disability in 2010: 16

I say stop printing.

[-] 0 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

Yes, exactly.

[-] -1 points by TheRazor (-329) 1 year ago

Richard Kent Gates might be one of the only honest posters here.

He speaks only the truth.

[-] 1 points by shooz (26677) 1 year ago

Except when he lies through his teeth and uses puppets, eh?

BTW: Puppet use is the epitome of dishonesty, so your interpretation is missing some very important facts.

[-] -2 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

Yes, I agree. What a dishonest thread. Puppets have invalidated this subject.

[-] 2 points by shooz (26677) 1 year ago

How many puppets richard?

You never told how many you use and what their names are.

Puppet use is VERY dishonest.

[-] -2 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

Yep. Pin the message on the messenger. You never let me down.

[-] 2 points by shooz (26677) 1 year ago

Dishonest is, as dishonest does, puppet master.

You never let me down either.

Will you fess up now, or continue your lie?

[-] -2 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

There is no mystery about who I am. The mystery is why you continue attacking me when all of my posts are about poverty, economics, or about the type of behavior you continue to engage in, including your new hot button thread as we all know is shit. There is no need for teachers to engage in issues of sexuality in all classes all the time, damn right she got kicked.

[-] 1 points by shooz (26677) 1 year ago

Now that's very, very dishonest and cowardly too.

Why don't you make that comment in the thread about the incident?

Chicken hearted too?

[-] -1 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

Bite on your bait thread? I think not. You tried to take an issue about sexuality in lower grade levels and turn it into one about equal rights in order to provide another meaningless thread to float. You're now also creepy.

[-] 2 points by shooz (26677) 1 year ago

You act like sexual equality isn't an OWS aim.

It is.

Well, at least I know your puppets won't be there.........:)

Continue lying now.

[-] -1 points by richardkentgates (3269) from Fort Walton Beach, FL 1 year ago

Right, which is why you figured you had something to draw people in. But we can see that isn't why she was suspended. I see now you figure the LBG community to be suckers.