11.11.2014

Avoid the Economic 'Titanic Effect' by Learning to Live With and Enjoy Mild Deflation and Degrowth

The Piketty Split Graph

The graphic above shows how the wealth of the 'top 0.1%' and that of the 'bottom 90%' are now equal. How in the hell did the rich manage to get so much richer during the 'recession'? In short, the .01%ers have been buying up assets with newly created money 'given' to them nearly interest free by the Central banks of the western world in what the deceivers call "a bid to boost lending and growth across the economy".

Better yet for the .01%, the Central banks haven't 'given' the money to the big players, what they've been doing is buying up the banks worthless mortgage backed assets. So the rich guys get to both dump their losses on the mortgages and gain free money to 'invest'. Tyler Durden of 0Hedge does a great job everyday of explaining the world's dire situation. Tyler, and most other 'market' analysts agree, says the stocks markets are where they are only because of the funny money being showered on them, "...it's the liquidity injections [funny money], not fundamentals, which we would argue has been the major driver of markets for the past few years. Put differently, it takes around $200bn per quarter just to keep markets from selling off."

YIKES. So the billions of dollars in funny money are pumping up the next huge asset bubble, the market's current stratospheric highs wouldn't exist, in fact the 'markets' would be singing the same tune the folks on Main St. are - deflation. On Main St.everybody  has jobs that are paid less and get far fewer benefits than they used to, everybody there has huge levels of personal debt. The only way the US consumer can consume anything, including necessities often, is by diving deeper into debt. The 99%  have to borrow before they can spend and in the US, consumer spending accounts for 70% of GDP.

Retail sales equals velocity of money. Reduced consumer spending is deflation. Central banks can do all kinds of stuff, but they can’t make us spend our money on things we don’t want or need. Let alone make us borrow to do so. And if we don’t, deflation is an inevitable fact, its about how much fast we spend the money we have and how much we borrow to do it.

The stock market's index is being held aloft by the politicians and banksters to avoid the chaos that would ensue [and will inevitably when the curtain is pulled back] otherwise. In this interim period the elites are busy selling their holdings in worthless paper [while the market prices remain fraudulently high] and buying tangible assets instead, assets like south Pacific islands capable of self-sustaining agriculture. The .01% on our global Titanic are quietly climbing Into the lifeboats 'While the Band Plays On'.

The Titanic Effect can be avoided if, instead of listening to the band play on, we each open our eyes to the deception and respond accordingly. If, like the .01% are attempting, we use our leverage wisely we can let the hot air of excess liquidity out of the balloon slowly. Deflating the bubble slowly will cause prices to drop  Deflation is one of the great boogeymen of present-day economic and monetary policy. 'A Plea for (Mild) Deflation' by George Selgin is an excellent, concise, primer on the advantages of deflation and degrowth.