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Mass Deflation Ahead: A Keynesian Fantasy

Written by Gary North on January 31, 2014

Ambrose Evans-Pritchard is a Keynesian journalist. He fears price deflation more than any other economic outcome. He has warned against price deflation for years.

Put differently, he fears a recession that will re-price assets in terms of what the public really is willing to pay. He fears a time of pricing in which the price inflation that has been created by central bank monetary inflation brings prices into line with what customers are willing to pay. He fears customer authority.

All economists do, except for the Austrians. They reject the idea that central bank inflation that distorts the most important prices in an economy — interest rates — should ever return to normal, as in “rates left alone by the legalized counterfeiting of fractional reserve banking. They think that central banks must create fiat money in order to lower rates — forever.

They believe that the policy of monetary inflation, once adopted, must never be abandoned,

Therefore, the headline reads: World risks deflationary shock as BRICS puncture credit bubbles.

Austrians read this: World risks lower priced goods and capital as BRICS reduce legalized. counterfeiting.

He writes: “As matters stand, the next recession will push the Western economic system over the edge into deflation.”

Austrians read: “The Austrian theory of the boom-bust cycle is still operating.”

He writes: “It is a remarkable state of affairs that the G2 monetary superpowers — the US and China — should both be tightening.”

Austrians read:  “It is a remarkable state of affairs that the G2 monetary superpowers — the US and China — should both be tightening.”

He issues his warning: “Half the world economy is one accident away from a deflation trap. The International Monetary Fund says the probability may now be as high as 20pc.”

Economies are threatened by accidents only when central bank counterfeiting has created an unsustainable boom. All booms are unsustainable by counterfeiting. What happens when they cease counterfeiting at the older, higher rate is not an accident. It is the free market’s outcome: re-pricing assets whose prices had been driven up by the counterfeiting.

(For the rest of my article, click the link.)

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7 thoughts on “Mass Deflation Ahead: A Keynesian Fantasy

  1. Anonymous Coward says:

    What link?

    Where is your article?

    Please provide the link!!

  2. Mass deflation is only possible by monetary systems such as ours. Isn't it amazing that they attack something they created? A true free market monetary system does not have mass deflation built into it, instead there'd be a tendency for a very slow and mild deflation.

    They other lazy Keynesian argument is that "central banks only create 15 % of the new money". Yeah…… and our monetary system subsidizes, and guarantees fractional reserve banks. Who are the shareholders of the Federal Reserve……. yes, the major fractional reserve banks.

    We don't "need" inflation or deflation. If corn prices shoot through the roof, DONT interfere with this price signal. Consumers will have to buy other foods and that price increase is also a signal to potential and existing producers that there is a valid reason to increase capital expenditures to increase production of corn.

    They like to point to Japan's deflation "trap". But in every instance fail to mention the much less than 1 % YoY deflation they have experienced. It averaged out that way, but some years were inflationary. Economic sluggishness sure does correlate with deflation in Japan……… but so does MASSIVE intervention by their government to "fight" the deflation. Keynesians always pick one thing to imply causation with. No Austrian would endorse a single Japanese government policy. I.E. it isn't the inflation/deflation that is the problem, it is what causes inflation or deflation that should be discussed.

  3. I this another libertarian “paranoia?” An irrational concern for the consumer’s well being?

  4. WhiteFalcon says:

    I believe that we very much need a prolonged period of gradual deflation, or disinfaltion as it was called in the Regan years. The Federal Reserve has pretty much distroyed the dollar that it was created to protect the value of, and it is now time to distroy the Federal Reserve. One of the best things we can do for the people is to increase the value of the dollar. Their paychecks may not increase much, but the buying power of each dollar that they get would be greater and greater so that they would in effect be getting raises year after year, and the Government wouldn't be able to steal it. Inflation benefits only the Government, and that is a pipe dream. $500 in 1912 would buy what $50,000 does today. It isn't rocket science. It is common sense.

  5. Russell Sayce says:

    You're right, it's not rocket science, it is common sense that Keynesian economics are a fantasy, with a clif at the end. People just hang to the hope that it will come after they have departed, obviously, we don't all get that luxury.

  6. Good point, Gary. The Fed and the FedGov would rather eat dog doo-doo than see prices fall to market-clearing levels. Deflation is a bugger if you're a borrower. Who's the biggest borrower of all? On the other hand, the name of the inflation game is "stiff your lender". So basically the entire idea is based on theft. This is not a coincidence.