Have you noticed prices going down? Gas is down. Homes are down. Rents are coming down. Gold is down. Stocks are down. Everything is getting cheaper. Yet my income is staying the same. This sounds great! All around the world economies are cooling off as people buy less, waste less and speculate less. Along with that comes unemployment, increased government payouts to the needy and a financial climate that inhibits great new business plans from getting off the ground.

 

Deflation is not going to last. It cannot. What happens during a deflation is that our GDP declines. Today the GDP calculations are rather meaningless for the most part but the one thing that remains valid about it is that inflation is gobbling up more and more of it even as most people are enjoying this temporary deflation.

 

The GDP calculations include a compensation for inflation, currently around 4.2%. Using these calculations our GDP growth has been screeching to a halt. I've been told that John Williams at shadowstats.com measures inflation the same way it was measured back in the 70's and 80's. He figures it has been running close to 10%, not 4.2%. If the GDP calculations today used his traditional measure of inflation our "growth" would have turned into "contraction" a couple years ago.

 

Why can't deflation last? Because deflation means that every month we have to divert a larger percentage of our GDP towards servicing our debt. The Fed and the US Treasury and the corrupt congress (except for Ron Paul) have been acting for most of this year to cause massive inflation. Where is it? How long can they lean on the inflation button before we begin to see the results? Their goal is to inflate the GDP numbers more than the calculated value of inflation. That way, after the calculations are done, it looks like GDP is going up because the raw (fudged) numbers are getting bigger.

 

The hope is that our creditors will still think the USA is growing and they will be willing to "buy our debt" for a few more months. They aren't fools, they know this is all smoke and mirrors...but they have no choice, the US is setting the stage and they all just have to take their marks and wait for the call to "action".

 

If the GDP can be inflated faster than the "official" inflation rate, then each month we can divert less and less of our GDP towards servicing that debt. Eventually, our creditors will refuse to take our worthless paper as payment for the real wealth they loaned us. During the interim, the magnitude of the eventual consequences increase at an accelerating rate. At this time when real productivity is declining, regardless of the "official" calculations, when tax revenues are decreasing and Government welfare obligations are increasing rapidly, there is no way in hell the Fed, US Treasury or the corrupt Congress (except Ron Paul) or the new president will allow deflation to continue. In fact, they couldn't if they did want to. The consequences are inevitable...inflation is coming and inflation eats the future.

 

This current deflation that is looking so nice to those of us who are still working and buying things is akin to the water receding from the beach prior to a tsunami. Startling and unexpected, with no visible signs of the impending doom to follow, the receding tide will lure the unsuspecting out on to the coastal flats to gape and gawk at all the really cool stuff that has been made assessable. When that tidal wave of inflation comes roaring back to the beach, anyone caught unawares will be crushed, pounded into the dirt, smashed and broken as if they were dolls instead of real people.

 

Once that tide goes out, there is no magic trick of congress or high finance that can cause it to come back to the beach peacefully and serenely. The tsunami is inevitable and due to the actions of the Fed, US Treasury and the corrupt congress (except Ron Paul) it will be the worst the world has ever seen. The inflation tsunami phenomena is not new. It has helped destroy over 3 dozen empires in the past. Their folly is our folly as we proceed with the same wrong-headed policies and behavior as our predecessors.

 

Now is not the time to wander the exposed coastal flats in wonder. It is the time to RUN for high ground with supplies and loved ones. There will probably be a rebound in the stock markets, perhaps even a rebound in housing and a decline in unemployment between now and Spring. But maybe not. If there is a rebound, it will mark the last chance for folks who know what is coming to recover a little of their cash and get out. We've never seen a situation so extraordinary so applying folk wisdom to predict the possibility of a rebound is a bit like describing an undiscovered country.

 

I know the possibility exists that I'm all wrong and I'll eventually look like chicken little. However, I'm not predicting that the sky will fall...the sky will remain untouched by all this human suffering. All I'm trying to do is point to an unstoppable situation that is coming and urge people to take it seriously. When the tsunami hits, there will be no more social welfare programs to tide people over. (no pun intended) Each of our futures will depend on how well we prepared as individuals.

 

I've been watching this build for at least 15 years and preparing for my own future for the past 10 on a regular basis. Nothing yet has happened to cause me to doubt our country will follow the path of the other great empires. Instead, the actions our nation takes have only caused me to realize that what is coming could be so much worse than I had ever expected...and I'm expecting it to be horrible.

 

-Jahfre Fire Eater

Reader Comments:

Posted By: Walt Thiessen
Date: 2008-11-19 11:15:55

Good article, but you skipped an important point. The only reason that servicing the national debt is such a huge problem is because inflation is what created that debt in the first place. The creation of debt is how the money supply is always increased by the Fed.

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Posted By: Gary Trieste
Date: 2008-11-19 20:11:15

I am so glad you wrote this article, it saves me from having to do it myself. It is amazingly puzzling to any hard commodity economist to see the prices (in US dollars) of real commodities priced so low. It is hard to believe, and your analogy to the low tide of tsunami is exactly perfect.

What I don't understand is why; although we are not deluded by this low tide, it is just so obvious that with all the outlay of invisible  and unbacked dollars being made, inflation (maybe hyper) is unavoidable. And yet, the big investors who should know this as much if not more than we, have not cornered the  gold or other liquid commodities supply. It is very strange, and an inversion that almost a gift to the common man right now who may have something to invest/hoard.

So, you've coded your recommendations subtley.

What we need to do, to survive, is convert all our liquid assets (if you have any) into hard easily liquid commodities like precious metals, or maybe stock up on fuel while the prices are so weirdly low.

I guess what you have said, to stock up on the basics of life, food, water, clothing, like the mormons do for a year's worth, may be a very good idea - that and some off the grid capabilities.

I dont think it will get as bad as complete mayhem, but I think everything will be in short supply.

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Posted By: Master C
Date: 2008-11-21 12:47:09

The TSUNAMI is coming!  The TSUNAMI is coming!  Run for high ground ~ "with supplies and loved ones!"  Jahfre said it's true, and he's been watching this build "for at least 15 years and preparing for (his) own future for the last 10 on a regular basis." 

I really admire DOOMSAYERS.  They spread HYSTERIA like peanut butter on bread.  Keep it up, Jahfre.  When NOTHING happens, you can just rerun your article in another year or so. 

As for me, if the waves get rough, I just get out my SURF BOARD and ENJOY IT!   Kowabunga!

Master C

 

 

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Posted By: Jahfre Fire Eater
Date: 2008-11-21 15:43:25

Thanks for the comments.  There are so many aspects to this that I didn't go into.  Walt has his favorite, I may have a different one.  They would both be valid.

Gary, I'm not trying to be subtle.  That really isn't my style. :-)  I just don't know what the right things are for someone else to do.  I grew up on a self-sufficient farm in Pennsylvania so I know about all kinds of things that are considered "kooky survivalist tricks".  I'd never suggest everyone become like me but that's the only way I know how to be. 

In general I think it is best to hold value in goods or metal, to make due or repair quality tools and comforts, to cook at home most of the time, to plan ahead to minimize time away from home or work.  Behind television, which I do not own, I think driving has to be the biggest waste of time and energy on the planet.

I'll never understand people who spend cash to hire someone to do their home improvement projects so they can spend more time driving around consuming.

Master C, one thing has remained true throughout history...there has never been a time when nothing happened.  That would be the absolute least of my worries.  Throughout history it has always been true that those who were best prepared for hard times were those who survived to prosper when things began to turn around.

If all you need to be prepared for the future is a surfboard and, of course, the shift-key, I have no reason to suggest otherwise. Kowabunga Dude!

-Jahfre Fire Eater

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Posted By: Master C
Date: 2008-11-21 19:36:23

Jahfre,

I don't know about never a time when nothing happened.  They had me all hyped about the Y2K thing.  Not just computer meltdowns, but sunspot activity, the lining up of planets, massive earthquakes, power outages.  I was prepared!  Water, food, alternate electrical system, even a hand cranked radio with shortwave and attachable light. 

What happened?  Nothing!

It has since made me a total skeptic.  If something happens, I know I can handle it.  If nothing happens, I know I'm not going to look like the dope I was before. 

My motto: Be prepared, but don't OVERprepare.

Master C

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Posted By: Jean-Christophe Roux
Date: 2008-11-22 07:00:25

We are not going through "deflation" but through "asset liquidation". If some the prices are going down others are not going down but are going up. Deflation is a more general downward pressure on prices caused by an increase in the purchasing power of the money. Note that it is possible to have inflation and asset liquidation at the same time. Just like we are really experiencing now. Once governemnt people have started printing money to buy more votes and get more political power over their fellow human beings, they generate mal-investments that translate into bubbles that need to burst (this is the asset liquidation phase). Underlying is the long-term and ugly price of government-planned money: inflation. 

Why does it matter to distinguish deflation from asset liquidation? For one, it is always good to call a cat a cat. But, more importantly, government crooks need this concept of "deflation" to position the Federal Reserve's printing press as the solution to the current economic problem. When it is really on of the major origins. 

Please, rewrite your article as "enjoy asset liquidation" instead of "Enjoy deflation". Don't buy into government's bullshit. Those people, and their supporters, are crooks. 

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Posted By: Mrs. Fire Eater
Date: 2008-11-22 13:37:00

Hm... chicken little you say? I'd say, check out Roger Babson and don't worry about people who fell for the Y2K hoax judging your level of preparedness for a likely economic future.

Can you surf in a dust bowl? That would be totally cool, dude.

Something about New Englanders and being independent is often a disconnect on this topic. Those knowing nothing except a disposable culture see canning your own beans or filling a pantry as "hysterical" behavior? Where I come from it keeps you from having to run to the store all the time, which is expensive when your live in a rural area. The reason many of the last generation went to college is because Mom canned her own garden and darned socks instead of buying new. When prices are on the rise, stocking up is just plain reasonable, and everyone knows homemade food tastes better anyway. It's not about chaos or hysteria or getting the corn popped in preparation for armegeddon - it's about being self-sufficient, prepared for everything (and therefore well prepared for when nothing happens) and not stressing about money by being cost effective. What sort of immediate and shortsighted world to live in where economic crisis and the things that caused them cannot be learned from even when they happened a scant 100 years ago. 

Thinking the world will descend into chaos because a computer at a bank doesn't know what year it is for a few days? That's the definition of hysteria, but it doesn't negate the plain good sense of planning ahead in good economic times for the likely hard economic times that come around every so often for any number of reasons. Or a fire or flood or hurricane or, if you live in New England an ice storm that lasted two weeks, or if you live in the mountains of Colorado, a rock slide that closes the road for six months! Really!

Like Jahfre says, there is just never nothing happening. And like Roger Babson might have said, "I told you so!"

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Posted By: Jean-Christophe Roux
Date: 2008-11-24 10:44:07

If we are in deflation, how comes that Avis / Budget are increasing their rates?????

 http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=MW&date=20081124&id=9402564

We are going through asset liquidation and underlying inflation, which is not deflation.

Don't be fooled by government's propaganda. Don't repeat Bush's and Obama's trash.

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