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article imageOp-Ed: Inflation or Deflation? Take Your Pick

By Bill Jencks     Jun 14, 2009 in Politics
With both the US and Europe still in an unshifting deflationary spiral, the only question now being asked is whether these economies will finally be decimated by inflation or deflation.
And so the economic madness of dirty government economic plays continues. This week has heralded two interesting titbits of news. Earlier this week, two Japanese gents were stopped at the Italian Swiss border town of Chiasso. Their baggage was searched, and the border guards found $134 billion worth of US Treasury notes hidden in their suitcases. The only thing left to determine is if these US Treasuries are counterfeit or not. And since nobody in their right minds would go to all that trouble to counterfeit large-denomination US Treasury notes and since it is not possible for any corporation or individual to own or hold such a huge quantity of US Treasuries, there can only be one explanation — governments are involved. Could it be that Japan is desperately trying to offload her useless stash of US Treasuries by any means possible? Looks like the Chinese aren't the only one's who are laughing at Geithner in disbelief.
The second sliver of dirty government idiocy is a recent report that Canada's government mint is strangely missing millions in gold bullion. It just disappeared. And isn't Canada the country that has the world's "safest" banks? Apparently this is not an accounting error and the Mounties have been trumpeted in to investigate. Sort of makes you wonder whether there really is any gold left in Fort Knox doesn't it? Anyway, thank heavens for The Federal Reserve Transparency Acy 2009 -- which is doing so well right now because of Ron Paul's hard and honest efforts.
I've also been pondering on the financial crisis, wondering which way it's going to go — will it be deflation, where GDP and growth are concurrently and neatly garroted and the whole economy remains neutered for years (because the velocity of money or spending is negligible) or is it to be hyperinflation which, driven completely by market and human behaviour, is where the population — en masse — suddenly decides in a panic to give up on their national currency and effectively rush into hard assets such as commodities like gold, silver or other more stable currencies (wherein the velocity of money rapidly rises out of control)? Put simply — deflation utterly kills and stagnates or reverses the economy, whereas hyperinflation slays and decimates the national monetary base. So, both deflation or hyperinflation can easily train-wreck any economy. This is the choice. Both Europe and the US are currently in deflation, with the Fed trying desperately to turn this disinflation spiral — through its inflationary QE policies — back into a mild, steady inflation of about 6%. A helluva balancing act that is rarely successful.
"Obama would regulate New Bubbles," quotes Politico last week.
Really? I guess Obama must undoubtedly be God then. Nobody – but nobody — has ever been able to regulate or let alone spot any of the bubbles that have so suddenly and viciously erupted throughout the economic history of the US (…and anyone who does spot and warn of impending bubbles is either totally ignored or ridiculed). And the fact that Obama — who, let's face it, really knows absolutely nothing about economics — and who boldly spouts this bilge with his rapidly tarnishing silver tongue, is surely testament to his complete lack of respect and disdain for his own beloved citizens. That statement by Obama is almost as dumb as him saying that Americans can save by spending more. Who's he trying to kid? From the Daily Reckoning:
"Oh, the sheer absurdity of it all! We have a government that doesn't even seem to know where bubbles come from. They don't know how they work. They don't know why they keep inflating. They don't understand why you can't deflate them slowly. In short, an administration with a rudimentary understanding of economics is confident it can regulate the next bubble - whatever it might be."
While that shaman Ben Bernanke recently decreed that the US economy will start to recover by the end of 2009 — which hat did he pull that one out of? Reasons? (none given, Ben has spoken) — and all this from a man whose Fed monetary policies and gross financial manipulations regularly and so consistently cause these bubbles in the first place without fail. So much then for the blind myth of free, honest markets.
Much has been said within the US media concerning the necessity of China continuing their steady purchasing of US Treasuries. But it's all OK apparently, China is still purchasing our debt — so there's no need to worry folks. Ah, but what the US media completely omitted to tell you is the fact that the Chinese are now purchasing short-term US Treasuries and have given up completely on the long-term 10, 20 and 30 year T-Bills. This is very bad news for the US. This new switch to short-term US Treasuries by China greatly hinders the US Government's capability of simply "inflating away" their debt to China over 20-30 years(China now only holds these Treasuries for only 2 or 3 years — which is not enough time to dissolve the US debt by inflation). Other creditor countries are also doing this now and this is what is causing long-term US Treasury yields to move upwards so dangerously at the moment. Even if there is a mild recovery in the US stock market — within the next 18 months, when the Chinese see further evidence that both The Administration and the Fed have been lying and are continuing to inflate(devalue) the dollar (and perhaps, by then, they will have also lost their AAA rating) — thus eroding the value of even short-term US Treasuries, the Chinese are likely to abandon even these grossly manipulated and corrupted investment vehicles altogether in order to preserve their own surplus savings. The Chinese have already been buying up all the commodities and raw resources they can, both to protect their savings and to prepare their exit from this financial mess. And who can blame them?
Meanwhile the clock is ticking, US GDP now stands at -5%, real unemployment is already at 20% and CPI inflation is still heading South towards negative (all figures from And what is The Administration doing? Funding huge Medicare and infrastructure projects(with more govt.debt), buying useless insolvent banks and corporations(with more govt. debt), buying huge amounts of toxic debt and generally funding Wall Street to the full(with more govt. debt), thereby accumulating massive unpayable trillions in debt against taxpayer liability as well as grossly inflating the dollar in your pocket. Does that sound like a reasonable and sound economic recovery policy? Bear in mind that hyperinflation generally leads to a fast economic death(think Weimar Republic(1923) or Zimbabwe), whereas deflation always seems to lead to a slower, lingering and more painful death(think Great Depression or Japan). Hands up anyone who seriously thinks that the likes of Japan, The Middle East, China or Europe are happy and willing to pay or fund America's gross fiscal debt -- via purchasing US Treasuries -- against a rapidly devaluing dollar? And since we are agreed that there is no such thing as never-never where debt is concerned -- after all, The Reaper must always be paid -- then who will eventually have to pick up this tab and pay back all this massive US debt? The current US taxpayer debt now stands at $546,688 per household. And don't worry -- I won't even mention the dreaded 'T' word...
The final outcome — deflation or inflation — will depend on the existing and continuing Keynesian policy mistakes which are currently being achieved so effortlessly by the Obama Administration. Pure and simple.
Take your pick.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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