Gold Wars by Kelly Mitchell

Author:Kelly Mitchell
Language: eng
Format: epub
ISBN: 9780986036279
Publisher: Clarity Press

Other ‘nations

Fragility rises on long-term trend, with increasingly severe financial crises

—Hyman Minsky

There are a few other ‘nations. Though it sounds obtuse, the simplest is disinflation. This is merely a reduction in the inflation rate. If inflation ran at 10% in one month and 9% the next, there was a 1% disinflation. Disinflation is not deflation; it is still inflation, unless the disinflation exceeds the total inflation rate. Disinflation, if validly measured, indicates greater control over the inflation rate by the monetary creators.

Of more import is stagflation. In the 1970s, stagflation was the fear. Most people talked about it, but few understood it. In a sense, it’s quite basic – rising prices, slowing economy with falling employment and lagging wages. Stagflation was thought impossible, until it happened. Rising prices were believed to spur production and hence job creation. More money creation was believed to be a panacea for a sluggish economy, and a consequent bout of inflation was a sensible price to pay. Economists were wrong – returns on printing declined quickly. It turns out to be more complicated. More money is just more paper. It is not more wealth and soon enough, the public understands this.

Stagflation is very intractable once it gains a hold. The tools for lowering unemployment contradict the tools for tightening inflation. Stagflation is politically measured by the so-called Misery Index: inflation plus unemployment.

It can arise from supply shocks in widely used essential goods, especially oil. When oil hit $150 in 2008, prices soared at the same time that economic activity contracted. Energy intensive businesses that were undercapitalized failed. Think of the auto makers. The key danger is a huge price rise for producers which cannot be easily passed on to consumers.

The second cause of stagflation is poor policy. If the Fed prints too much and the cost of labor is non-competitive (because the Chinese work for a lot less), then industry contracts while the money supply increases. Stagflation can also emanate from changes in the relative value of currencies, often from forex (currency exchange) markets, leading to severe price rises.

The above are more conventional ideas. The more hard money Austrian school finds stagflation to be solely caused by excess printing. Because the first ones to receive money (banks/financiers) benefit from it most by having increased purchasing power, and because those later in line (manufacturers/ labor) are the true producers, money creation destroys productive capacity by weakening the producer’s position in the capital chain.

In truth, the current economy will experience multiple phases, with some deflation, inflation, stagflation and possibly culminating in hyperinflation. Meantime, and from a more gold-based perspective, the current experience might more accurately be termed schizoflation. In some sense schizoflation, also called biflation, is always happening in real terms. As money moves from one sector to another, the sector losing funds experiences deflationary pressures and the sector gaining funds experiences inflationary pressures.

The current circumstance of debt saturation will create a predictable printing response. The increase in currency and debt will make biflation a powerful force. Necessary items – food, energy and so forth – are rising because of printing pressures.

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