Deflation? I Don't Think So

July 11, 2001

(I had an e-mail letter from a reader of a previous piece, who was outraged when I called dishonest Abe Lincoln one of our worst presidents. I e-mailed him chapter 11 of my book "Consequences," which covers the wrongly titled "Civil War," and Abe pretty well. If you would like a copy of it, request it at gold@gwe.net, and I'll be delighted to send it to you.)

"Deflation seems to be the order of the day," says a prominent financial periodical, which shall remain nameless to preserve its reputation, but the word "Daily" is in its title.

The CNBC gang of B.P.'s (beautiful people) and other "economists" are saying that we might have deflation, which of course is the opposite of inflation, both of which are handily defined in most dictionaries. If we loaded all the "economists" in a boat, and sent them over Niagara Falls, we might all be better informed. "Last wek I cudnt evn spel ekonimist, and now I are wun." Inflation happens NOT to be prices going up, but an increase in the currency supply. Monsoons of dollars, pounds, francs, yen, or pesos emitted from lubricated presses, fed with felled, munched trees and ink, and handed out by untrustworthy governments, is what inflation is. These rainstorms of rubles and other rubble, may be "official" pieces of paper with ink on them, or "unofficial" counterfeit ones, which are the products of the exact same machinery, only of smaller scale, and usually concealed in back alley garages or basement enclosures, which escape the heat detectors and prying eyes of government stooges and agents. Many times, counterfeit production occurs in nations outside the user of such paper, but the effect is the same. More and more potty paper money chasing the same amount of goods, and presto! We have higher prices in ever increasing amounts of ever decreasing purchasing power funny money…or inflation.

To achieve "deflation," we must have a decrease in the amount of dummy dollars, which might eventually mean that prices of goods in them would lower. With M3 up $600 billion (officially) since Jan 1st, the supply of fiat funny money isn't going to decrease! If deflation occurred, prices in fake mazuma would decrease. "Well, prices have gone down in some items," someone will say. Sure they have, at China Marts, because the merchandise was produced by prison labor in China, or sweat shops in the Philippines, and imported here, to the delight of the "free trade" gang. Prices going down? If they do, in goods produced without America's bureaucratic melange of regulations, then the effect won't last long, because "deflation," isn't prices going down, any more than "inflation" is prices going up. The effects of them may be such, but definitively, such assumptions are in error. Some products may escape wrong definitions, such as computer prices going down due to mass production, improved technology, and huge demand. Lumber prices have shallowed a bit, due to decreased demand and huge inventories that must be moved. Prices in dollars may go down due to slave labor production. Meat and produce originating from places you wouldn't want to visit, may be a bit cheaper, due to the fact that they come from places you wouldn't want to visit. Why can't we have point of origin labels on our food? Does this make too much sense for the denizens of D.C.? Why doesn't some smart super market chain institute it, and set an example for the rest of the industry?

Deflation will occur when pigs fly, or the Jews begin loving the Palestinians. Deflation will occur when the funny money is replaced by currencies backed by gold. Deflation will occur when dimes are once again made of 90% silver. Deflation will occur when Chicken Little is correct. Deflation has as much chance of happening as does China of becoming a republic.

You know what an unbreakable habit is, don't you? While I have never smoked, I understand that nicotine and smoking, are the most unbreakable of all addictions. More so than heroin, cocaine, or whatever is out there, which I have never tried either. The habit of governments producing money out of thin air to pay their bills and re-electing the politicos is more habit forming than all the nicotine and cocaine in the world put together. Imagine what would happen if the fractional reserve banking system, and printing press money ceased to exist. Prosperity and stability beyond all imagining, is what would happen. Eliminating printing press money would have to go right along with eliminating all subsidies from all governments of all kinds for everyone and everything, which of course, would eliminate 90% of government at all levels, and millions of weaklings, hangers on, lazy bums, and jerks would cease to exist. Now, wouldn't that be a nice thing to happen?

"Well smartass, stop and think. We had deflation after the 1929 stock market crash, why not now?" Easy. Y'see, back in those halcyon days before FDR, who started all this, the dollars were backed by actual, literal, fungible, tangible, beautiful, desirable gold. One could turn in their paper money and get real gold for it, at par. An ounce of gold for a $20 dollar bill. The presses couldn't run till there was gold in the treasury to back it. FDR had a mistress, and a 2nd cousin wife, who my Dad used to unkindly call "Old Horseface." Eleanor Roosevelt, who had a female mistress, was a member of every left wing, pro-communist group in existence at that time, and of course regularly still communicates with Hillary. FDR started the welfare state, fake money, social insecurity, tried to pack the Supreme Court, and got us into WW II, after promising not to. FDR, who ran on a "conservative" platform, and his fiat money habit has been impossible to break. Just like every other addiction, it always requires more and more, to just break even and keep everything from crashing. Deflation, when we are continually practicing inflation, just to keep the thing together? Not likely!

If we ever had deflation, America would once again be the shining example for the rest of the world, rather than the largest debtor nation, replete with ruined cities, schools that don't teach, unsafe streets, gobbledygook by the ton, and millions of laws being spewed forth daily from worthless bureaucrats and politicos, both Republican and Democrat. If we had deflation, our dollars would be backed by gold, our coins would be silver, a 3 bedroom home would sell for $2500, a new car for $400, and we would need a fraction of the jails and police. In other words, about like it was when I was born in 1934, before FDR's hoaxes hadn't affected us too much.

Deflation would be wonderful! With deflation, savings accounts would be the smart thing to do, because you could be assured that your dollars would not lose purchasing power, but may actually gain in value. With today's worldwide inflation, anyone who saves is foolish, because even with interest, it is a losing proposition. Our current inflation, which is under reported by about 400% at least, makes saving in dollars, francs, pesos, yen, rubles, reals, pounds, or what have you, a study in, "how to lose your assets 101." I'd love to be able to save in currencies, and with deflation, we all could do it safely.

What will happen, is that the presses will continue to run, the fiat money will continue to decline in purchasing power, and prices will continue skyward. The slave produced merchandise will also have to go up in price, as will wages. The wages will not go up as fast as prices however, and this results in our standard of living being about where it was 50 years ago…or lower. When the money comes off the presses as fast as it does, the wages simply cannot catch up, because they are last in line. The first things to go up in currency prices with inflation, are goods, raw materials, foods, and the like. The wage increases are always last. With no inflation, wages wouldn't have to go up, because prices wouldn't go up. With deflation, prices would go down first, and wages would go down last, for the same reason they go up last under inflation. Wage earners demand increases when they discover they are losing ground under inflation, and it eventually happens after the fact. With deflation, employers demand wage reductions after they suffer a squeeze, making wages go down eventually, rather than immediately. Under deflation, the employee benefits. Under inflation, the employer benefits.

The best situation, is no deflation or inflation, which happens under a gold standard. As population increases, gold production increases also, and governments can increase the money supply as fast as they get the gold to back it. Under a gold standard, the currency supply is not rigid, but can only increase as fast as does the supply of precious metals needed to back the currency. Under a gold standard, we could also return to currencies being issued by banks which had the gold in their vaults, as was common until the advent of FDR and his gang of left wing, communist cabinet and trusted advisors. Felix Frankfurter, one of his kingpins, became a Supreme Court justice, and his far left influence is with us today.

Deflation would be wonderful! Pray for deflation! It will never happen, but wouldn't it be nice? Since we will never have deflation, which is a decrease in the money supply, or the money being backed by gold and silver, we need to have our own private, individual, gold standard. Save in gold and silver, not in currencies. If Greenspan says we are having deflation, look to the sky and see if pigs are flying. If so, save in currencies. If the politicos say we are having deflation because Chinese shoes or lumber costs a bit less temporarily, check to see if lawyers have become honest. If so, save in currencies. In the mean time, protect yourself.

Gold is widespread in low concentrations in all igneous rocks.

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